Introduction
Her Majesty’s Revenue and Customs (HMRC) has repaid £48.5 million to pension savers who overpaid tax during pension withdrawals between July and September. The latest HMRC figures, published on 30 October in the official pension schemes newsletter, outline ongoing issues with tax calculations for individuals accessing their pension savings flexibly.
Since the introduction of pension freedoms in 2015, total repayments have now surpassed £1.5 billion. The figures highlight the continued challenges faced by savers navigating the tax system when exercising new pension withdrawal options introduced over the past decade.
Overview of HMRC Repayments
Each year, thousands of pension savers opt to access their funds flexibly, often resulting in HMRC applying emergency tax codes to the withdrawals. This can lead to savers initially overpaying income tax, particularly upon their first flexible withdrawal.
HMRC allows individuals who have overpaid tax to claim a refund, usually through specific forms or at the end of the tax year. The repayment process ensures affected individuals are not left out of pocket for extended periods.
Quarterly Repayment Figures
According to data released in October, HMRC processed refunds totalling £48,560,205 between 1 July and 30 September 2025. This quarterly amount is broadly in line with the previous quarter’s figure, indicating a persistent trend of overpayments as more people access their pension savings.
These repayments are typically made following the submission of claim forms by individuals, although some are repaid automatically when tax records are reconciled. The frequency and scale of repayments point to an ongoing administrative challenge.
Cumulative Totals Since Pension Reforms
Since the introduction of pension freedoms in April 2015, HMRC has now returned more than £1.5 billion to savers who overpaid tax on pension withdrawals.
Pension freedoms gave individuals aged 55 and over increased flexibility to access defined contribution pension pots. The large cumulative total reflects both the popularity of flexible withdrawals and the impact of the emergency tax system, which often taxes the initial lump sum as if it were a regular monthly amount.
Policy Context and Pension Freedoms
The reforms to pension access were intended to give UK savers greater autonomy over their retirement finances. However, the administrative system for taxing lump sum withdrawals did not change substantially after 2015, leading to the prevalence of emergency tax codes and subsequent overpayments.
Industry groups and consumer advocates have repeatedly called for refinements to the taxation process for pension withdrawals. Suggestions have included pre-notification systems or revised tax code handling to ensure deductions better reflect an individual's likely annual income.
Implications for Savers
For pensioners accessing their savings, overpayments mean potential delays in receiving the correct level of retirement income. While the majority of overpaid tax can be recouped by submitting forms such as P55, P53Z, or P50Z, many savers must wait for HMRC to process refunds, which can impact cash flow during retirement.
Financial advisers have encouraged individuals to be vigilant about tax implications when making lump sum withdrawals and to submit any required claims promptly to minimise the period of overpayment.
Final Summary
HMRC’s latest quarterly figures underline the persistent issue of overpaid tax arising from pension freedoms, with £48.5 million refunded in the past three months alone and over £1.5 billion returned since 2015.
The situation exposes the complexity of tax policy in relation to flexible pension access and the need for further system improvements to prevent future overpayments. As the number of pension withdrawals continues to grow, addressing these tax administration issues remains a priority for policymakers and industry bodies alike.
