State pensioners who have been overtaxed on pension withdrawals are being urged to chase HMRC for refunds. Recent data reveals that over 15,000 pension savers were refunded an average of £2,881 between January and March 2025, as part of a wider effort to correct ongoing overpayments due to outdated tax codes.
With a planned overhaul of the pension tax system, experts are calling for pension savers to be proactive in claiming the refunds they are owed, as the government prepares for a more streamlined approach.
Refunds Shed Light on Systemic Overpayments
According to the latest figures from HMRC, a total of £44 million was refunded to pension savers in the first quarter of 2025 alone.
More than 15,000 individuals received an average refund of £2,881 each after being overtaxed due to an emergency tax rate applied when withdrawing pension funds. This has been a long-standing issue, with more than £1.4 billion in overpayments reclaimed by savers since 2015.
The overpayment situation primarily affects those withdrawing from pensions flexibly, as the current tax system has not been fully adapted to accommodate this. Many pension savers have faced unexpected and excessive tax bills, often running into thousands of pounds, which they need to reclaim by filling out HMRC forms.
According to Tom Selby, Director of Public Policy at AJ Bell, this system is outdated and continues to unfairly penalise hard-working savers.
“These figures are likely to be only the tip of the iceberg, however, as they only capture those who fill in the relevant HMRC reclaim form. In reality many more people will not go through the official process of reclaiming the money they are owed. As a result, they will be reliant on HMRC putting their affairs in order at the end of the tax year.” Selby noted.
Tax Code Overhaul Hopes to Simplify System
Pension savers are now pinning hopes on a significant overhaul of the pension tax code system, which is expected to be implemented in the near future. According to Jamie Clark, a retirement specialist at Quilter, the upcoming changes should streamline tax coding and reduce the administrative burden on savers.
This overhaul is also expected to minimise the likelihood of overpayments occurring in the first place.
“The latest pension flexibility statistics reveal HMRC’s plans to streamline tax coding from the current tax year couldn’t come soon enough.” Clark said. “Many people are still reliant on their pension savings to manage financial pressures, and any hasty decision to access these funds could not only result in unintended, and often unexpected, tax consequences, but they could also hamper longer-term financial plans.”
While the overhaul of the tax code system is anticipated to ease these issues, savers are still being advised to act quickly and claim their refunds. Many retirees continue to face significant tax overpayments, with the often laborious task of reclaiming the money that has been wrongly taken from them.
