More than 15,000 reclaim forms were processed during the first quarter of 2022
Katie Elliott and Lauren Haughey Lifestyle and Money Reporter
06:00, 01 Jun 2025
Since 2015, over £1.4 billion has been refunded to pensioners who were overtaxed on their withdrawals(Image: Getty Images)
A remarkable £44 million was refunded to Brits who overpaid tax on pension withdrawals between January and March, tax office figures show. According to data from HM Revenue and Customs (HMRC), more than 15,000 reclaim forms were processed in the first quarter, with an average reclaim amounting to £2,881. Since 2015, more than £1.4 billion has been refunded to pensioners who were overtaxed on their withdrawals.
The problem originates from the 2015 pension reforms, which permit people aged 55 and older to make flexible withdrawals from their pensions. Yet HMRC systems often use emergency tax codes for these withdrawals, incorrectly presuming they will occur monthly. This commonly leads to savers facing substantial overtaxation.
While HMRC says it is striving to improve the system, people can take steps to lessen their chances of facing a large tax bill from the outset, even with just £1 involved, according to one specialist. Tom Selby, director of public policy at AJ Bell, told the Express: “HMRC’s outdated approach to the taxation of flexible pension withdrawals continues to hit hard-working savers in the pocket.
Thousands of pensioners have been charged more tax than necessary year on year(Image: Getty)
“The average reclaim has fallen slightly this quarter to £2,881, its lowest level in almost six years. Despite this, too many people are still being overtaxed.”
Mr Selby pointed out a ray of hope for some pensioners. He continued: “HMRC has offered a glimmer of hope to those who take a regular drawdown income.
“From April 2025, the Government improved its tax code process so these people will be moved from an emergency code to paying the right amount of tax more quickly. But that doesn’t help those taking a one-off withdrawal who will continue to be overtaxed.”
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Suggesting a practical workaround, Mr Selby added: “Savers planning a single withdrawal in a tax year might avoid an excessive tax hit by first making a small, notional withdrawal. This can help HMRC apply the correct tax code to the larger, subsequent withdrawal.”
Mr Selby explained that making an initial tiny withdrawal – possibly as little as £1 – could inform HMRC to assign the proper tax code for the following larger withdrawal. However, it’s wise to check with your pension provider about minimum withdrawal amounts first.
You can also complete any of the three HMRC forms, and your tax refund should arrive within 30 days. Mr Selby said: “If you don’t do this, the Revenue says it will put you back in the correct tax position at the end of the tax year.”
Mr Selby explained that making an initial tiny withdrawal – possibly as little as £1 – could inform HMRC to assign the proper tax code(Image: Getty Images)
The form you need to complete will depend on how you accessed your retirement pot. As stated by AJ Bell:
- If you’ve only flexibly accessed part of your pension pot, then use form P55.
- If you’ve emptied your pot by flexibly accessing your pension and are still working or receiving benefits, you should fill out form P53Z.
- If you’ve emptied your pot by flexibly accessing your pension and aren’t working or receiving benefits, you should fill out form P50Z.