HMRC repaid more than £44m to people who overpaid tax when they flexibly accessed their pensions in Q1 2025, the latest government Pension Schemes Newsletter has revealed, pushing total repayments since 2015 past £1.4bn.
According to the update, HMRC repaid a total of £44,003,977 from 1 January 2025 to 31 March 2025, with an average tax refund per saver of around £2,881.
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 15,000 forms during the period, including 9,694 P55 forms, 4,409 P53Z forms, and 1,171 P50Z forms.
Building on the previous government updates, this means that more than £1.4bn has now been reclaimed by people overtaxed on pension withdrawals since 2015.
However, AJ Bell director of public policy, Tom Selby, warned that these figures are "likely to be only the tip of the iceberg, as they only capture those who fill in the relevant HMRC reclaim form".
"In reality many more people will use the quicker process of reclaiming the money they are owed. As a result, they will be reliant on HMRC putting their affairs in order at the end of the tax year," he stated.
Selby acknowledged that HMRC has offered a "glimmer of hope" to those who take a regular drawdown income, as it recently confirmed that it was looking to improve its tax code process so these people will be moved from an emergency code to paying the right amount of tax more quickly.
Indeed, 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.
Under the changes, HMRC will automatically update the tax code for customers who are on a temporary tax code and would benefit from being on a cumulative code, meaning that they’ll avoid an overpayment or underpayment at the end of the year.
However, Selby argued that this "doesn’t help those taking a one-off withdrawal who will continue to be overtaxed".
"We have only just blown out the candles on the cake celebrating 10 years of pensions freedoms," he continued.
"It is simply unacceptable that after all this time the government has still not managed to adapt the tax system to cope with the fact Brits are able to access their pensions flexibly from age 55, instead persisting with an arcane approach which hits people with an unfair tax bill, often running into thousands of pounds, and requires them to fill in one of three forms if they want to get their money back within 30 days."
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