The UK's HMRC repaid more than £44m to people who overpaid tax when they flexibly accessed their pensions in Q3 2024, the latest government Pension Schemes Newsletter has revealed.

According to the update, HMRC repaid a total of £44,295,438 from 1 July 2024 to 30 September 2024, with an average tax refund per saver of around £3,691.

The tax repayments on flexible withdrawals are necessary as HMRC applies 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 a total of 12,331 forms during the period, including 8,629 P55 forms, 2,948 P53Z forms, and 754 P50Z forms.

Quilter head of retirement policy, Jon Greer, highlighted the figures as demonstration that pension tax overpayment refunds continue to be a “substantial issue” for savers.

And whilst this quarter has seen a slight decrease in overpayments compared to the last, he argued that it still underscores the ongoing complexity and inefficiencies in the system when it comes to flexible pension withdrawals.

“Despite a gradual easing in cost-of-living pressures, these figures suggest that many are still drawing from their pension savings to navigate financial challenges,” he continued.

This was echoed by Hargreaves Lansdown head of retirement analysis, Helen Morrissey, emphasised that while savers can get the extra money refunded, "this is not the point".

"Many of these people will not have been expecting this and the extra tax bill will have come as a nasty shock," she stated.

"It may even have undermined plans that people had for the money in the short term, and it takes time to sort out. It’s an extra complexity that no-one needs and should have been resolved many years ago."

Greer also warned that, with persistent rumours and the government’s rhetoric pointing to a ‘painful’ fiscal event, many savers may take unplanned action to take tax-free cash from their pension pots, fearing potential changes to pension taxation.

"What’s particularly concerning is that we may see a sharp rise in withdrawals in the next set of data, driven by growing anxieties surrounding the upcoming budget," he stated.

“This could lead to hasty decisions, which may not be in their long-term financial interests. Clearly this is not intentional policy by the government but might come to be an unfortunate by-product nevertheless.

“It is vital that those considering pension withdrawals amid these budget rumours seek professional financial advice.

“A rush to take money out could result in unnecessary tax liabilities, and careful planning is essential to avoid making decisions that might compromise their retirement plans.

“Until the system is changed, we are likely to continue seeing many savers caught out and forced to reclaim significant sums of money.”

This article was originally published on our sister website, Pensions Age.

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