New figures show extent of overcharging on withdrawals, with £4,000 on average handed back
Some people ithdrawing money from pensions are being overcharged on tax (Image: Getty)
Anyone who has taken money out of a pension is being told they may have paid too much tax and a warning issued on a £10,000 withdrawal. HMRC new figures show people were paid back £50.3m in April – June – after being overtaxed for making flexible pension withdrawals.
During the three‑month period, HMRC refunded £50,353,656.76, with the average repayment coming in at almost £4,000 per person. Officials have admitted that the reason it happens is because HMRC applies an emergency tax code.
The system assumes a single withdrawal will be repeated every month of the year, artificially inflating your expected annual income and triggering higher-rate tax brackets. If someone was to take out £10,000 it would mean they are taxed as if their annual income is £120,000.
Adam Cole, retirement specialist at Quilter, said: “HMRC’s latest figures show that between April and June 2026 more than 12,500 people had to reclaim tax after accessing their pension flexibly, with more than £50.3million repaid in the second quarter of the year.”
He noted that while the number of reclaim forms submitted had fallen slightly compared with the same period in 2025, the total refunded amount had increased by around £2million.
“The average repayment stands at almost £4,000, not an insignificant amount of money,” he said. “Instead, retirees are being left out of pocket while they wait for HMRC to return their own money — a process that could and should be quicker or avoided altogether.”
Anyone who has made a single pension withdrawal, has been told to check if they have overpaid tax. To check if you are eligible for a tax refund click here. https://www.gov.uk/claim-tax-refund
People are being told they’ll have to either fill out one of the forms a P55, P53Z or P50Z.
- You should use a P55 if you have only flexibly accessed part of your pension pot.
- A P53Z should be used if you have withdrawn all your pension and also receive other taxable income.
- If you have withdrawn all your pension and have no other taxable income, then you should use a P50Z form.
Between April 1 and June 30, HMRC processed:
- 10,200 P55 repayment forms
- 2,001 P53Z forms
- 411 P50Z forms
The latest figures suggest the issue continues to affect thousands of pension savers each year despite repeated calls for reform. HMRC said: “Ultimately, nobody overpays tax as a result of taking advantage of pension flexibility. We will repay anyone who pays too much because they’re on an emergency tax code, and individuals can claim a repayment much earlier if they wish.”
One way savers planning to take a single withdrawal in a tax year can potentially avoid the shock of a big over-taxation bill is by taking a notional withdrawal first.
Tom Selby, director of public policy at AJ Bell said: “This should mean HMRC is able to apply the correct tax code to the second, larger withdrawal. Since the change, thousands of pensioners continue to overpay. Adam Cole, retirement specialist at Quilter said: ‘PAYE was designed for predictable monthly earnings, not ad hoc pension withdrawals, and as a result it continues to generate avoidable overpayments that have to be corrected after the fact.
“All of this is happening at a time when tax pressure on retirees is increasing. With the personal allowance frozen until April 2031 and the state pension taking up a growing share of it, more people are being dragged into tax.
“‘When flexible pension withdrawals are then layered on top, emergency tax becomes more likely and more costly. HMRC has improved the speed of repayments, but these figures show the system is still fixing errors rather than preventing them.“