HMRC alert for 14,000 pension savers over tax - £44.1million repaid
The bill is issued by mistake due to a quirk in the tax system.
Almost 14,000 Britons accessing their retirement savings sent HMRC forms flagged that they'd been overcharged, through a quirk in the tax system. Flexible-access drawdown allows people aged 55 or over to withdraw unlimited, flexible income or lump sums from their Defined Contribution (DC) pensions before their State Pension kicks in.
But thousands of savers could be owed hundreds, in many cases thousands, of pounds after being overtaxed when accessing these savings pots, the latest pension flexibility statistics from HMRC revealed. The issue is down to a quirk of the PAYE system, which is designed for regular monthly income and not one-off or irregular pension withdrawals.
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It happens because your first withdrawal when accessing savings flexibily can be erroneously flagged as a regular payment rather than a one off, with a "Month 1" tax code issued indicating that you will take out that amount each month.
According to the official data, 13,942 people submitted approved claims between January and March 2026 to recover tax paid on flexible pension withdrawals. In total, over £44.1million was paid back over that period.
The number of claims decreased by around 9% when compared to the same period last year, though the total amount the UK tax authority refunded remained more or less flat.
Most of the money you withdraw is taxed like income, so if HMRC's calculation of your earnings is inflated, you can be mistakenly pushed into a higher tax bracket and taxed by your provider at the wrong rate over the year.
Commenting on the latest figures, Adam Cole, a retirement specialist at Quilter, said: “The real shift is not the number of people affected, but the size of the mistakes being made. The average repayment has risen to just over £3,160, up almost 10% year on year.
“That suggests fewer people may be caught by emergency tax, but when it happens the sums involved are larger, leaving retirees out of pocket while they wait for HMRC to return their own money.”
Tom Selby, director of public policy at investment platform AJ Bell, said HMRC has improved the tax system for people who take a regular drawdown income, but some people will still be taxed too much.
"From April 2025, the government improved its tax code process so people are moved from an emergency code to paying the right amount of tax more quickly," though he warned that people doing a one-off withdrawal will still be overtaxed.
He says those making a single withdrawal in a tax year "can potentially avoid the shock of a big overtaxation bill" by first taking out a "notional withdrawal" like £1, which allows HMRC to apply the correct tax code for the second, larger withdrawal.
"Alternatively, you can fill out one of three HMRC forms and you should receive your tax back within 30 days," he added. "If you don’t do this, the Revenue says it will put you back in the correct tax position at the end of the tax year."
