HMRC repaid more than £48m to people who overpaid tax when they flexibly accessed their pensions in Q2 2025, the latest government Pension Schemes Newsletter has revealed. 

According to the update, HMRC repaid a total of £48,701,927 from 1 April 2025 to 30 June 2025, with an average tax refund per saver of around £3,814. 

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 12,000 forms during the period, including 10,008 P55 forms, 2,205 P53Z forms, and 509 P50Z forms.

This means that around £1.45bn has now been reclaimed by people overtaxed on pension withdrawals since 2015.

However, HMRC announced at the start of the year that it will be changing the system from this month (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.

And Broadstone head of policy, David Brooks, said that whilst these latest figures were "alarming", it is "pleasing" that the system will soon be changing.

“Improvements to the framework should mean that people accessing their pension cash are moved onto the correct tax code sooner, minimising or eliminating the need to claw back overpayments," Brooks stated.

However, he argued that while this "undoubtedly" enhances the system, it leaves a "dissatisfactory outcome" for those who will still need to reclaim overpaid tax.”

Brooks is not alone in this concern, as Quilter head of retirement policy, Jon Greer, echoed this, noting that "HMRC’s changes might have resulted in marginally fewer claims but with a higher value compared to the previous quarter, although this was also slightly down on the same period the year before".

“The idea behind HMRC’s new tax coding process is that it should reduce the administrative burden on savers, while also minimising the number of overpayments being made in the first place," he stated.

"But the changes they made do not impact the taxation of the first pension payment and although it is early days, and the stats may include payments from the previous tax year, the change appears to be having minimal impact.

"Pension withdrawals are always going to be a challenge for a PAYE system that is designed for regular income.

“This is a headache for people as the burden is on them to apply for a tax refund.

“This new system will need some time to bed in and hopefully we do start to see the number of claims drop more significantly.”

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