HM Revenue and Customs information shows they are refunding millions of pounds
Linda Howard and Fiona Callingham Lifestyle writer
11:40, 22 Nov 2025
HMRC could owe you £3,800 if you’ve taken money out of your pension(Image: Getty)
Pensioners could be due tax refunds of up to £3,800. If you’ve taken a lump sum from your pension, there’s a chance you may have overpaid on tax.
HM Revenue and Customs (HMRC) data reveals that between 1 April and 30 June, the tax authority refunded £48.7 million for overpayments on pension withdrawals. Retirement expert Helen Morrissey suggests that around 13,000 refund applications were processed during this period, with the average refund being approximately £3,800.
As reported by the Daily Record, Ms Morrissey emphasised that those withdrawing a lump sum from their pension for the first time can face excessive taxation. This is primarily because HMRC’s system wrongly assumes the same amount will be withdrawn each month, potentially leading to an unexpected tax bill.
However, the head of retirement analysis at Hargreaves Lansdown noted that these funds can be reclaimed from HMRC, although it might be an “admin headache”. Ms Morrissey stated: “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 1’ 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 de-rail people’s retirement plans.”
The pension expert said: “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 guidance on how to avoid an unexpected tax bill. She recommended: “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.”