HMRC issued £48.7m in refunds between April and June last year for overpaid tax on pension withdrawals with the average refund worth around £3,800Linda Howard Money and Consumer Writer and Lucy John

21:46, 16 Jan 2026

The most recent figures from HM Revenue and Customs (HMRC) reveal the tax authority issued £48.7m in refunds between the beginning of April and the end of June last year for overpaid tax on pension withdrawals. Retirement expert Helen Morrissey said the data suggests nearly 13,000 refund forms were processed during that period with the average refund worth approximately £3,800.

Ms Morrissey explained people accessing a lump sum from their pension for the first time can be taxed too much. The primary reason is the HMRC system mistakenly assumes the same amount will be withdrawn every month, which can result in an unexpected tax bill.

However the head of retirement analysis at Hargreaves Lansdown said the money can be reclaimed from HMRC but it can be an “admin headache”. For money-saving tips sign up to our Money newsletter here.

Ms Morrissey said: “The overpaid pension tax saga continues to drag on. In just three months HMRC has repaid a whopping £48.7m to people who paid too much tax for simply accessing their pension. With an average refund of around £3,800 these refunds amount to a significant chunk of change.

“The problem hits people who are taking a lump sum from their pension for the first time. They get taxed on what is known as a ‘month one’ basis, which means it’s treated as though the same amount will come out every month.

“This results in a far bigger tax bill, which can come as an unpleasant surprise or even derail people’s retirement plans.”

The retirement expert added: “The money can be reclaimed. HMRC processed close to 13,000 forms between the beginning of April and the end of June but it’s an admin headache that people can well do without.

“Ten years on from the advent of Freedom and Choice it’s a process that should have been consigned to history.”

Ms Morrissey also provided advice on how to avoid an unexpected tax bill, reports the Daily Record.

She advised: “There are things you can do to mitigate it. For instance you could make your first pension withdrawal a relatively small one.

“However if you were looking to take a lump sum to fund travel or home renovations, for instance, you will need to plan ahead to make sure the money you take isn’t whittled away by tax which could delay your plans.

“If you do get clobbered with a big tax bill then you will need to fill out one of three forms so that HMRC can process the refund. Otherwise you can wait until the end of the tax year.”