New data reveals a significant surge in UK households reclaiming overpaid tax on their pension withdrawals, with refunds totalling close to £50 million in just one quarter.
Substantial Sums Returned to Savers
According to the latest figures from HMRC and the Labour Party government, the period from July to September 2025 saw a major effort by savers to rectify pension overtaxation. More than 13,700 individuals submitted official reclaim forms to the tax authority over those three months.
The average amount recovered per person was a substantial £3,539. This brings the total reclaimed in that quarter alone to almost £50 million. This is part of a much larger, ongoing issue, with data from the DWP showing that the total amount of overpaid tax refunded since 2015 has now surpassed a staggering £1.5 billion.
A 'Tip of the Iceberg' Problem
Retirement experts have expressed serious concern over these persistent figures. Jon Greer, head of retirement policy at Quilter, described it as “extraordinary” that thousands of people are still being overtaxed a full decade after the introduction of pension freedom rules.
He criticised a system that he says “continues to work against the very flexibility it was designed to promote,” noting that the PAYE system is ill-suited for one-off pension withdrawals. Greer is calling for fundamental reform to prevent these errors from happening in the first place, rather than relying on a complex repayment process.
Echoing this sentiment, Tom Selby, director of public policy at AJ Bell, warned that the official figures are “likely to only be the tip of the iceberg.” He explained that the data only captures savers who proactively fill out one of HMRC's three reclaim forms.
The Reclaim Process and its Pitfalls
Mr Selby highlighted a critical flaw for those taking a single, large withdrawal. “In reality, many will be reliant on HMRC putting their affairs in order at the end of the tax year,” he said.
This delay offers little comfort to those who need access to their full pension pot immediately. He clarified that while it is possible to get a refund within 30 days by submitting the correct forms, those who do not are left waiting for an automatic reconciliation, which can take much longer.
The consistent scale of these refunds points to a systemic issue within the UK's pension tax system, raising questions about its efficiency and fairness for retirees seeking to access their savings.
