HMRC said that in the final three months of the year, it had processed 13,652 tax repayment claim forms for pension flexibility payments. · MoMo Productions via Getty Images
HM Revenue & Customs (HMRC) refunded a total of £46.26m in overpaid tax on pension withdrawals in the fourth quarter, new data has shown.
The UK tax collector said that, in the final three months of the year, it had processed 13,652 tax repayment claim forms for pension flexibility payments.
Jon Greer, head of retirement policy at Quilter, highlighted that the number of claims in the fourth quarter of 2025 was lower than the 14,612 forms lodged for the same period of the previous year. However, he pointed out that the typical refund amount had “barely shifted”, coming in at £3,388 compared with £3,389 previously.
People can withdraw funds from defined contribution (DC) pensions flexibly once they have reached the minimum early retirement age of 55.
This can be done by taking out 25% of a pension pot tax-free as a lump sum in one go, with any further withdrawals on the remaining 75% taxed as income. The other option is to do multiple withdrawals, with 25% of the amount taken out being tax-free, and the remaining 75% of this payment taxed as income.
The tax on pension flexibility payments is taken using the pay-as-you-earn (PAYE) system. Pension providers collect the tax on behalf of HMRC.
Read more: You could be missing thousands in pension tax relief – here’s how to claim it
However, unless a provider has a person’s up-to-date tax code, people are usually placed on an emergency code when they first withdraw from their pension pot.
“Every quarter we see thousands of pensioners penalised for accessing their own savings, as the system undermines the very flexibility it intended to deliver,” said Greer. “HMRC has taken steps to accelerate repayments, but the figures make clear that the core issue remains unresolved.”
He added: “PAYE was designed for regular earnings, not ad hoc pension withdrawals, and retirees continue to face unnecessary administrative hurdles as a result of the unintended friction that is baked into the process.”
In addition, Greer explained that a growing share of the personal tax-free allowance on income is being taken up by the state pension, driving tax liabilities higher for retirees. He pointed out that more people are being pushed into paying tax, given that the personal allowance threshold has been frozen until April 2031, while the state pension is continuing to rise.
“While there have been some suggestions that state pension income will not be taxed, it remains to be seen how, if or when this would be enacted,” he said. “For now, as people take flexible withdrawals to top up their income, a greater proportion becomes taxable, adding to the frustration when over-deductions occur.”