The average refund was 3,342, but thousands got more than 10,000 back – with the largest refunds topping 100,000
Pensioners are being hit with emergency tax bills running into tens of thousands of pounds – and then have to go to HMRC to get their own savings back.
Figures show almost 60,000 people had to claim refunds in 2023-24 after being wrongly overtaxed on pension withdrawals.
The average payout was £3,342, but thousands got more than £10,000 back – with the largest refunds topping £100,000.
Since pension freedoms began in 2015, more than half a million people have been forced into this position, with almost £1.5billion refunded.
The problem stems from HMRC’s use of an “emergency” tax code when someone dips into a defined contribution pension for the first time.
The code assumes the withdrawal will be repeated every month – massively inflating the bill. Clare Moffat, pension expert at Royal London, said the overcharging “usually come as a massive shock” to retirees.
“Suddenly, that large chunk of money which had been earmarked for something special, like a new kitchen or the holiday of a lifetime, has shrunk considerably, and in some cases these plans may have to be postponed or abandoned altogether,” she said.
How to claim your refund
Those who have been overtaxed do not automatically get the money back straight away – they must submit a claim.
Otherwise, HMRC only pays out after the end of the tax year.
- Check your paperwork: If your tax code has “M1” at the end, it means you were taxed on a “month one” basis and are likely to have overpaid.
- Look at the sums: If you took a large, one-off lump sum – more than your 25% tax-free allowance – you may have been wrongly taxed.
- Use an online calculator: Providers such as Standard Life offer online tools to see if you’re due money back.
To reclaim, pensioners need to complete one of three HMRC forms, which can be done online or by post:
- P55 – if part of your pension remains untouched.
- P53Z – if the whole pension pot has been cashed out.
- P50Z – if you have no other income in the tax year.
An HMRC spokesperson said: “We will repay anyone who pays too much because they’re on an emergency tax code and people can claim a repayment much earlier if they wish.”
