Pensioners in the UK may be entitled to tax refunds of nearly £3,000, according to recent figures from HM Revenue and Customs (HMRC). Many retirees who have been overtaxed on their pension withdrawals are now in the process of reclaiming significant sums.
In just the first quarter of 2025, HMRC processed more than 15,000 claims, with the total amount refunded reaching over £44 million. The issue arises from emergency tax codes applied to pension withdrawals, which often result in higher-than-necessary tax payments.
Information from GBNews highlights how many pensioners may be due a refund due to these overpayments.
What Is Causing the Overpayment?
The issue stems from emergency tax codes being applied when pensioners withdraw funds from their retirement accounts. These codes often lead to higher tax rates than necessary, particularly for those who should only be taxed at the basic 20% rate.
Instead, some pensioners end up paying 40%, a significant overpayment that is typically refunded upon claiming.
Many retirees find themselves paying more tax than necessary due to these emergency codes, which are applied when pension withdrawals are treated as one-off payments. This often results in pensioners being taxed at higher rates, not reflecting their usual income or personal tax-free allowances.
The Scale of the Issue
Between January and March 2025, HMRC handled 15,274 repayment claims, with the average tax refund per person nearing £3,000. This is part of a larger trend that has seen pensioners collectively reclaim over £1 billion in overpaid tax since the pension freedoms were introduced in 2015.
Jamie Clark, a retirement specialist at Quilter, commented on the ongoing situation :
The latest pension flexibility statistics reveal HMRC‘s plans to streamline tax coding from the current tax year couldn’t come soon enough.
He added that tax refunds continued to be a significant issue in the first quarter of 2025, as evidenced by the £44 million repaid during this period.
HMRC has acknowledged the ongoing problem and is working on updating the tax code system to better accommodate one-off pension withdrawals.
These updates aim to reduce the number of overpayments and ease the administrative burden on pensioners who currently have to claim refunds through a lengthy tax return process. Clark also emphasized that the new tax coding process should help minimize overpayments in the future.
How Can Pensioners Claim Their Refund?
Pensioners who believe they have been overtaxed need to fill out one of three HMRC forms to claim their tax refund. HMRC promises that once the correct form is submitted, refunds will typically be processed within 30 days. Without action, HMRC will correct the tax position at the end of the tax year.
Critics, however, including Tom Selby from AJ Bell, argue that HMRC’s approach to taxing flexible pension withdrawals remains outdated. Selby stated,
The latest tax refund figures show just how much savers are still being impacted by HMRC’s outdated system – He continued,
HMRC’s outdated approach to the taxation of flexible pension withdrawals continues to hit hard-working savers in the pocket.
Over £1.4 billion has been repaid to individuals who took the time to complete the reclaim forms, but Selby warned that these figures represent only
The tip of the iceberg – He added,
It is simply unacceptable that after all this time, the Government has still not managed to adapt the tax system.
