We use cookies to allow us and selected partners to improve your experience and our advertising. By continuing to browse you consent to our use of cookies. You can understand more and change your cookies preferences here.

Coronavirus Read our latest advice

Pensioners reclaim £334m after paying too much tax – does HMRC owe you money?

Nearly £90m emergency tax repayments have been made since January 2018

Pensioners reclaim £334m after paying too much tax – does HMRC owe you money?

Thousands of pensioners have been charged too much tax on their retirement savings, and have subsequently been refunded more than £334m since the introduction of pension freedoms in 2015.

The latest figures released by HM Revenue and Customs (HMRC) show that, from July to September alone, more than £38m has been paid to over 18,000 people. The total payout since 2018 stands at nearly £90m.

But if you’re owed a tax refund, you might not get it automatically – people have had to actively reclaim the tax.

So far, nearly 142,000 people have successfully received tax refunds, and thousands more could be eligible.

Here, we explain why some people are being overtaxed on their pension, and how to reclaim tax payments if it’s happened to you.

Why are pensions being overtaxed?

The pension freedom rules, which came into force in April 2015, are what’s behind the mix-up.

The new rules have given pension savers over the age of 55 the option to withdraw money from their pension pots any way they like – even allowing them to take out all of their savings in one go. But, with this added flexibility comes trickier tax obligations.

There are two principle ways to withdraw money from a pension. The first is taking an ‘uncrystallised fund pension lump sum’ (UFPLS), where 25% of the withdrawal is tax-free and the remaining 75% is subject to income tax.

The second way is to take a lump sum from flexi-access drawdown – this works by making the first 25% of your pension savings tax-free, and any subsequent withdrawals are then subject to income tax.

When you get a payment from your pension, pension companies collect the tax on your behalf through the Pay As You Earn system (PAYE). However, when you make your first withdrawal you’re likely to be automatically taxed at an ‘emergency rate’, which is often much higher than the normal rate.

This happens because when you take your first pension payment, the pension company won’t have any information about any other income you might have, so you’re taxed as an ‘emergency’ to make sure you’re not paying too little tax.

You’ll be taxed under the assumption that the money you withdraw one month will be the same every month – so, if you’re withdrawing all of your pension pot, you’re going to be taxed as if you had much more money than you do.

We’ve previously written about the details of how this works, and tips on how to avoid a huge tax bill.

Sometimes people won’t notice that they’ve been overtaxed, meaning they could end up losing out on large sums of their pension paying tax they didn’t owe.

Average overpaid tax refund of £2,355

HMRC has refunded more than £334m in overpaid tax from pension savings since pension freedoms were introduced in April 2015.

Almost 142,000 people have been forced to reclaim overpaid tax on their pension during this time, each receiving an average payout of £2,355.

In the last quarter alone, more than 18,000 people have made claims regarding overpaid tax.

Thousands more people could be eligible to claim back their money, so these figures are likely to increase.

Despite the system receiving criticism from the likes of Sir Steve Webb – policy director at Royal London and former pensions minister – who’s previously labelled it as ‘draconian’, the government has refused to make any changes to the way it taxes pension drawdown.

What to do if your pension is overtaxed

If you’ve made a withdrawal from your pension, make sure to check how much you were taxed – both for the months you made withdrawals and the following months.

Our pension tax calculator can help you see how much tax you’ll pay in the 2018-19 tax year, and how your bill will change after 6 April 2019.

If you’ve overpaid tax on your pension, you’ll need to fill out one of the three claim forms.


If you haven’t withdrawn your whole pension pot, and you’re not taking regular payments, use a P55 form. More than 10,500 people submitted this form between July and September this year.


A P53Z form is for those who have decided to drawdown their entire pension pot, and also receive other types of taxable income. Nearly 6,000 people submitted this form in the previous quarter of this year.


The last option is a P50Z form, which is for those who have drawdown their entire pension pot, but don’t receive any other forms of taxable income. More than 2,000 people sent this form in the third quarter of 2018.

In some cases, HMRC will post a P800 form, which details your tax calculation for the year and shows where you might have paid on pension income – but not everyone receives this, so you should still check for yourself.

Is pension drawdown right for you?

While the pension freedoms offer savers more flexibility and control over how and when they can access their pension pots, it’s best to have a plan for your money before you dip into your pot.

Pension drawdown offers more control over how your savings are managed, and means they can continue to grow while they are invested in the stock market, they are still exposed to investment risk and could lose value at any time.

It may not be the best option if you need a guaranteed monthly income.

Before you make a decision, seek qualified financial advice. Your pension pot needs to be able to fund you throughout retirement and old age, and it’s important that you fully understand the risks and consequences of each option.

Back to top
Back to top