Thousands of state pensioners have been overcharged by HM Revenue and Customs (HMRC), with new figures revealing that almost 14,000 individuals reclaimed tax between January and March 2026 after taking flexible pension withdrawals. A total of £44.1 million was repaid over the three-month period, pushing the average repayment to just over £3,160.
Rising average repayment despite fewer claims
Despite a 9% drop in the number of claims compared with the same period a year earlier, the total amount refunded has barely changed. This has resulted in a significant increase in the average repayment, which has risen by almost 10% year on year. Adam Cole, retirement specialist at Quilter, explained that the data highlights a shift in the scale of errors rather than the number of people affected.
“HMRC’s latest figures show that between January and March 2026 almost 14,000 people had to reclaim tax after accessing their pension flexibly, with more than £44.1m repaid in just three months,” Mr Cole said. “While the number of reclaim forms is down by around 9% compared with the same period last year, the total amount repaid has barely changed, which is a telling detail.”
Emergency tax system under scrutiny
The issue stems from how pension withdrawals are taxed under the Pay As You Earn (PAYE) system. One-off withdrawals are often treated as if they will be repeated every month, resulting in “emergency tax” being applied. Mr Cole noted that “PAYE was designed for predictable monthly earnings, not ad hoc pension withdrawals, and as a result it continues to generate avoidable overpayments that have to be corrected after the fact.”
He warned that the system is still fixing errors rather than preventing them. “When flexible pension withdrawals are then layered on top, emergency tax becomes more likely and more costly,” Mr Cole added.
The figures suggest that fewer people may be caught by emergency tax, but when it happens, the sums involved are larger. This trend underscores the need for reform in the tax system to better accommodate flexible pension withdrawals and avoid overcharging pensioners.
