A startling number of UK pensioners were inadvertently overcharged tax when withdrawing their pension pots—some losing tens of thousands of pounds.
Recent figures reveal that in the 2023–24 tax year, around 60,000 pension savers successfully claimed refunds, marking a 20% increase in claims compared to the previous year.
This article delves into why this happened, how much was refunded, what’s changing, and how you can check if you’re owed money.
Why Did Pensioners Get Overcharged?
Since the introduction of pension freedoms in 2015, adults aged 55 and over can access their defined contribution (DC) pension pots flexibly. While up to 25% can be taken tax-free, the remainder is taxed as income.
However, when making a large lump-sum withdrawal, HMRC often applies an “emergency” tax code. This system assumes the withdrawal is going to recur monthly for the rest of the year—resulting in excessive tax deductions for one-off withdrawals.
Refunds at a Glance
| Metric | 2023–24 Data |
|---|---|
| Total refund claimants | ~60,000 pension savers (20% ↑ from ~50,000) |
| Refunded over £5,000 | ~11,700 individuals |
| Refunded over £10,000 | ~2,400 individuals |
| Average refund amount | ~£3,342 (↑ £280 or ~9%) |
| Top 25 refunds average | ~£106,900 each |
| Total refunded since 2015 | ~£1.4 billion |
What Changed & Why It Still Matters
Despite HMRC’s updated systems—effective from April 2025—to auto-update tax codes when pension withdrawals begin, the issue persists. The emergency tax is often still applied to large initial withdrawals, immediately leaving pensioners out of pocket.
Experts warn that this issue may grow, particularly with upcoming inheritance tax changes in 2027 pushing more retirees to make substantial lifetime withdrawals, which may trigger more emergency tax errors.
How to Check and Claim Your Refund
If you think you were overtaxed, here’s what to do:
- Check your pension and tax records—look for excessive deductions.
- Submit the appropriate form to claim a refund:
- P55: Partial withdrawals while still working
- P53Z: Full withdrawal and not working
- P50Z: Full withdrawal and ceased working
- Expect processing within approximately 30 days, though end-of-year reconciliations are also possible.
- Consider making smaller withdrawals next time to reduce chances of emergency tax being applied.
Impact on Retirees
For many affected pensioners, being overcharged—sometimes by more than £10,000—can be a severe financial blow. Planning was derailed, budgets squeezed, and trust shaken. The rapid rise in claims underscores the lack of awareness around this tax trap.
As the pension landscape evolves—with inheritance tax pressures likely to intensify—more retirees may draw larger amounts, increasing their exposure to emergency tax misapplications.
The £10,000+ overcharge scandal showcases a critical flaw in HMRC’s handling of flexible pension withdrawals. While 60,000 pensioners reclaimed overpaid tax in 2023–24, many still remain unaware of their entitlements.
The system may have improved, but it hasn’t been fixed entirely—emergency tax is still applied and only refunded afterward.
If you’ve recently accessed your pension, especially via a large lump sum, make sure to review your tax deductions and submit the correct form if you suspect overcharging.
FAQs
Why were pensioners overcharged tax when withdrawing money?
HMRC applied an emergency tax code that treats one-off lump sums as if they are recurring monthly income, inflating the tax withheld.
How much can I claim back if overcharged?
Refunds vary—around 11,700 people reclaimed over £5,000, and 2,400 recovered more than £10,000. The average was £3,342.
What can I do to avoid or recover overcharged tax?
Use forms P55, P53Z, or P50Z depending on your situation. You can also make smaller withdrawals initially to avoid emergency tax.