HMRC has issued refunds averaging £3,470 to tens of thousands of taxpayers after overcharging them on pension withdrawals, new figures show. More than 54,000 repayments were made in the 2025/26 financial year, according to data obtained through a freedom of information request and first published by City AM.
How the overcharging happens
HMRC received 107,880 claims for refunds during the period, with around half resulting in a repayment. Pension savers can normally access their private pension pots from age 55, although this will rise to 57 in April 2028. Typically, 25% of the pension pot can be withdrawn without tax being applied, up to a maximum of £268,275, with the rest subject to income tax.
When a pension saver makes their first taxable withdrawal, their pension provider may use an 'emergency tax code', meaning they have paid tax when they were not supposed to. This can result in HMRC treating a one-off withdrawal as though the saver will continue to receive the same amount every month, which means they get taxed.
How to claim a refund
Savers who have been overcharged or mistakenly taxed must submit forms to get their refunds sooner rather than later. Alternatively, savers can wait until HMRC reviews their tax position after the end of the financial year.
Former pensions minister Steve Webb branded the system "absurd". He told City AM: "The whole system of overtaxing people on pension withdrawals and expecting them to fill in one of three different claim forms to get their tax back is absurd."
Previous refunds and next steps
Last year, £124.5 million was returned through more than 37,000 claims from savers who had made partial pension withdrawals. Additionally, £51.8 million was refunded to people who had withdrawn their entire pension pots but had other sources of income, and £10.8 million was returned to savers who had emptied their pots and had no other taxable income apart from the state pension.
People should first look at the statements from their pension provider to check if they have been overcharged. These statements should show how much money was withdrawn and how much tax was deducted, which can be compared with expected income for the tax year, including any earnings from work or other pensions.
