HMRC repaid more than £48m to people who overpaid tax when they flexibly accessed their pensions in Q3 2025, the latest government Pension Schemes Newsletter has revealed. 

According to the update, HMRC repaid a total of £48,560,205 from 1 July 2025 to 30 September 2025, with an average tax refund per saver of around £3,539. 

The tax repayments on flexible withdrawals were necessary as HMRC applied an emergency 'month 1' tax code on the first withdrawal, which can lead to an initial over-taxation.

People reclaiming overpaid tax must fill in one of three forms, with the latest update revealing that HMRC processed more than 13,500 forms during the period, including 9,340 P55 forms, 3,576 P53Z forms, and 805 P50Z forms.

The latest numbers mark a year-on-year increase on the same period in 2024, in both the number of reclaim forms submitted (up 11 per cent from 12,331) and the total repaid, up from £44m in Q3 2024, although average reclaim value nudged down from £3,592.20.

This means that just over £1.5bn has now been reclaimed by people overtaxed on pension withdrawals since 2015.

Solutions to address this issue are seemingly underway, as HMRC announced at the start of the year that it will be changing the system from April 2025 to improve how tax code information is used for those people who are new to receiving a private pension, so they pay the right amount of tax from the outset.

However, Quilter head of retirement policy, Jon Greer, said that "although HMRC has made changes to speed up repayments, these figures show the underlying problem persists".

"The PAYE system was built for regular employment income, not one-off pension withdrawals, and it continues to cause unnecessary complexity for retirees," he explained.

“Part of the reason more retirees are feeling the sting of tax on their pension withdrawals is that the state pension now consumes a growing share of the personal allowance. With the allowance frozen and the state pension rising each year, many people are being dragged into the tax net.

"When they make flexible withdrawals to top up their income, a larger portion is now taxable, compounding the frustration when over-deductions occur."

In addition to this, Greer pointed out that this quarter’s data landed at a time of significant Budget uncertainty, with speculation about changes to pension tax relief and allowances prompting some people to act hastily rather than wait.

"Those decisions, often driven by fear of future rule changes, risk damaging well-laid future financial plans," he stated. "It underlines how vital stability and clear communication are if the government wants to maintain confidence in the pension system.”

This need to avoid acting on Budget speculation was also further highlighted in HMRC's newsletter, as alongside the update on flexible withdrawals, it provided a further update on HMRC's stance on the tax consequences for pension commencement lump sum and uncrystallised funds pension lump sum transactions that have already been cancelled. 

HMRC previously issued a joint statement with the Financial Conduct Authority (FCA), which confirmed that cancellation rights do not apply in all circumstances and that simply accessing tax-free cash does not, in itself, trigger cancellation rights.

Building on this statement, HMRC has now confirmed that it may "challenge" alternative interpretations of the tax consequences of tax-free lump sums that have been returned after 5 December 2024, when the position was made clear.

"We expect registered pension schemes to tell members of their reduced lump sum allowance and lump sum death benefit allowance or report unauthorised payments in the usual way," it added. 

HMRC's newsletter also included an update on the latest pension scheme registration statistics, revealing that, for the period 6 April 2025 to 30 September 2025, HMRC received in total 1,057 applications to register new pension schemes.

Of these applications, 38 per cent have been registered and HMRC has currently refused registration for about 20 per cent of applications. No decision has yet been made on the outstanding applications.

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