Nearly nine million Britons have been overtaxed on their state pension due to HMRC miscalculating triple lock hikes, according to analysis by Katie Elliott, Consumer Editor. The error has affected 8.7 million state pensioners who pay income tax, resulting in overcharges totalling approximately £43.5 million last year. This has reportedly been ongoing for the past decade, with affected individuals paying around £5 more on average than they should.
Emergency Tax Trap on Private Pensions
The issue extends beyond state pensions. The emergency tax trap affects anyone accessing their private pension pot for the first time, treating a single withdrawal as if the saver earns that same lump sum every month. An emergency tax code is applied, costing pension savers significantly more. Latest HMRC data shows that £44.1 million was reclaimed for overtaxation in the first quarter of 2026. A total of 13,942 reclaim forms were processed, with an average repayment of £3,165 each.
Pension Freedoms and Persistent Problems
It has been 11 years since the government introduced “pension freedoms,” allowing people to access their pension pots flexibly from age 55. Despite annual reports of overtaxation, HMRC has made only minor improvements. Last year, it enhanced its tax code system so that individuals taking regular pension drawdown income are moved from the emergency tax code to the correct rate faster. However, the problem persists for those taking one-off withdrawals.
Workaround to Avoid Overtaxation
Katie Elliott advises a simple workaround: make a small withdrawal first, even just £1, which prompts HMRC to update your tax code. When you then take a larger sum, you are more likely to be taxed correctly. Pension providers may set a minimum withdrawal amount, so it is worth checking with them beforehand.
How to Reclaim Overpaid Tax
If you have already been overtaxed, you can reclaim the money by completing the correct HMRC form. The form depends on your circumstances: use P53Z if you have emptied your pot and are still working or on benefits; P50Z if you have emptied your pot and are not working or on benefits; or P55 if you have only taken part of your pot. HMRC says refunds are usually processed within 30 days. If you do not claim, you will be refunded automatically at the end of the tax year.
For those who believe they may be among the 8.7 million overtaxed on their state pensions, HMRC has advised contacting them directly to amend any incorrect figures.
Missing Pensions: A Common Issue
One in 20 people has lost track of a pension worth £9,500 on average, according to the article. Auto-enrollment and frequent job changes are the primary causes. Each time someone moves to a new employer, their old pension pot is often left behind. Without good records or consolidation, it is easy to forget what pensions you have.
Tracing services such as Pension Attention or Gretel can help locate old pensions. The government also offers a free online Pension Tracing Service. You will need either the employer's name or the pension provider's name. The helpline can provide contact details so you can get in touch.
Katie Elliott spoke to a reader from Newcastle-under-Lyme who successfully tracked down an old pension using Gretel. She received a £17,000 windfall, which she used for home improvements. The service located the lost pension in just two days.
Advice for Pension Holders
If you have moved jobs or changed your address several times without updating your details, investigate this, as you could be sitting on thousands of pounds without knowing it. Always try to speak to a verified financial adviser before making big decisions. You can find one on www.unbiased.co.uk.
