It is now over a decade since pension freedoms and flexible pension withdrawals were introduced
HMRC data reveals over £46m was returned to savers in the final three months of 2025(Image: JackF via Getty Images)
Thousands of pensioners are receiving payouts worth around £3,388 from HMRC, according to the latest figures.
HMRC data reveals over £46m was returned to savers in the final three months of 2025, following unexpected tax charges on pension withdrawals. During October to December 2025, HMRC handled 13,652 reclaim applications, with the typical repayment totalling nearly £3,400, according to the most recent Pension Schemes Newsletter.
Since pension freedoms launched in 2015, more than £1.5bn has now been reclaimed by people who were overtaxed when accessing their pensions. The issue commonly affects those withdrawing a lump sum from their pension for the first time, who are frequently taxed using a so-called ‘month one’ emergency rate.
Thousands of pensioners are receiving refunds averaging £3,388 each(Image: Miljan Živković via Getty Images)
This presumes the identical amount will be taken monthly, massively increasing the tax liability and leaving numerous pensioners thousands of pounds worse off.
Tom Selby, director of public policy at AJ Bell, said: “There appears to be no sign of a retreat in the number of pension overtaxation claims processed by HMRC, with over £46 million added in the final quarter of last year to the £1.5 billion total paid out to Brits since 2015.”
It is now over a decade since pension freedoms and flexible pension withdrawals were introduced and HMRC is still yet to address one of the enduring flaws in its approach to taxing those who choose to flexibly access their pension pots. “As a result of this confusing approach, many are forced to take matters into their own hands to be reunited with their hard-earned money.”
But these figures are likely to only barely scratch the surface, as they only capture those who fill in the relevant HMRC reclaim form. In reality, many will be reliant on HMRC putting their affairs in order after the end of the tax year.”
HMRC has made some changes for people taking regular drawdown income. From April 2025, taxpayers are moved off emergency codes more quickly, reducing the amount overpaid. But Mr Selby warned this offers no protection to those making a one-off withdrawal.
He said: “That doesn’t help those taking a one-off withdrawal, who will continue to be overtaxed. One way savers planning to take a single withdrawal in a tax year can potentially avoid the shock of a big overtaxation bill is by taking a notional withdrawal first.
“This should mean HMRC is able to apply the correct tax code to the second, larger withdrawal. Alternatively, you can fill out one of three HMRC forms and you should receive your tax back within 30 days.”
If no claim is made, HMRC says it will automatically correct the tax position at the end of the tax year – though critics warn this can take months. Mr Selby added that pension savers may face yet more bureaucracy under the Government’s proposed changes to inheritance tax on pensions from April 2027.
“Once the convoluted process proposed by government is implemented in April 2027, some beneficiaries may find they overpay income tax in the process and will need to claim a refund, heaping yet more fiddly admin on taxpayers.”
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said the overpayment of tax on pension withdrawals is “a long running saga that can catch people unawares”.
She warned the impact can be severe, saying: “This can result in a far bigger tax bill, which can come as a nasty surprise and could have a massive impact on your plans.”
While refunds can be claimed, she said the process is far from painless.
“You can fill out a form and send to HMRC, or you can wait until the end of the tax year, but it’s an admin headache and a high price to pay in terms of time, annoyance and paperwork for accessing your own money.”
How to get your money back
Anyone taking regular drawdown income should be corrected automatically over the course of the tax year. However, those making a single withdrawal may need to act.
HMRC says refunds should be paid within 30 days if the correct form is completed:
P53Z – if you’ve emptied your pension pot and are still working or receiving benefits
P50Z – if you’ve emptied your pot and are not working or receiving benefits
P55 – if you’ve only taken part of your pension pot
Failing to do so means waiting until the end of the tax year for HMRC to put things right.