An average of £3,470 has been paid out by HMRC to tens of thousands of taxpayers, new figures show. It comes after HMRC overcharged people for their pension withdrawals, with more than 54,000 repayments made to taxpayers in the 2025/26 financial year, the figures obtained through a freedom of information request show. City AM first published the numbers, showing that HMRC received 107,880 claims for refunds during the period. Around half of the applications resulted in a repayment, as people who withdrew money from their pensions sometimes ended up paying too much tax because of the way tax is deducted.
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 Typically, 25% of the pension pot can be withdrawn without tax being applied.
This allowance applies up to a maximum of £268,275, with the rest subject to income tax. But when a pension saver makes their first taxable withdrawal, their pension provider may use an ’emergency tax code’, meaning they’ve paid tax when they weren’t supposed to.
It may 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. Savers who have been overcharged or mistakenly taxed must submit forms to get their refunds sooner rather than later.
However, savers also have the option to wait until HMRC reviews their tax position after the end of the financial year. Former pensions minister Steve Webb has 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.”
Last year, £124.5million was returned through more than 37,000 claims from savers who had made partial pension withdrawals. Additionally, £51.8million was refunded to people who had withdrawn their entire pension pots but had other sources of income.
£10.8million 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 you withdrew and how much tax was deducted, which you can compare with your expected income for the tax year, including any earnings from work or other pensions.
