Average HMRC pension tax refund reaches almost £4,000 in 2026

Savers taking money from a pension for the first time are overpaying an average of almost £4,000 in tax.

HM Revenue and Customs repaid £50.3 million to people who overpaid tax on flexible pension withdrawals between April and June 2026, according to its latest data.

More than 12,500 savers filed a reclaim form over the three months to get that money back. The number of claimants sits marginally below the same quarter of 2025, but the total sum repaid has climbed by nearly £2 million year on year.

The rise means the typical individual refund is now larger, even as slightly fewer people claim.

The overpayments come from the way pay as you earn handles an initial pension withdrawal. HMRC applies an emergency tax code to that first payment, which treats the sum as though the saver intends to take the same amount every month for the remainder of the tax year.

A single withdrawal of a few thousand pounds is therefore taxed as if it formed part of an annual income many times larger, pushing a slice of it into higher rate bands that the saver never reaches.

Savers who want the money back before the end of the tax year have to ask for it. Three forms cover the circumstances, with P55 applying where a pot remains open and no regular income is being drawn, P53Z where the pot has been emptied and the saver has other taxable income, and P50Z where the pot has been emptied and no other income exists.

Anyone who does not submit a claim waits until HMRC reconciles their record after the tax year closes, leaving the money with the department for months.

“The average repayment stands at almost £4,000, not an insignificant amount of money, and is money that could be put to work sooner and to better use,” said Adam Cole, retirement specialist at wealth manager Quilter.

“Instead, retirees are being left out of pocket while they wait for HMRC to return their own money, a process that could and should be quicker or avoided altogether,” he said.

The figures come as the income tax personal allowance continues to run close to the level of the state pension, drawing more retirees into the tax system through their state entitlement alone.

Cole said the government has stepped back for now from the idea of unfreezing and uplifting the allowance, a change he said would help pensioners and reduce the administrative burden they carry.

The triple lock has continued to raise the state pension, but the threshold at which tax starts to bite has not moved with it.

HMRC said it has cut the time it takes to process repayments and has worked on its tax coding, though the quarterly totals show the underlying mismatch persists more than a decade after the pension freedoms took effect.

Cole said the system still does not reflect how people actually withdraw money in retirement, and that the gap leaves thousands of savers facing complexity and cashflow disruption they did not anticipate.

“Pension freedoms have been in place for over a decade now, but we still haven’t found a satisfactory answer to the tax question,” Cole said. “In the meantime, careful planning and professional advice remain essential to avoid paying too much tax at the point of withdrawal,” he said.

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