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% 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 nearly £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."

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