‘Absurd’: Pension savers refunded £188m after HMRC overtaxes withdrawals 

Tens of thousands of taxpayers were handed money back from HMRC last year after savers had too much tax deducted from their pension withdrawals, City AM can reveal. HMRC processed 54,166 pension withdrawal repayments in the 2025/26 financial year, worth around £188m, according to figures obtained through a Freedom of Information request. During the financial year, HMRC received 107,880 repayment claim forms. On average, impacted savers were repaid roughly £3,470. The overtaxation by the department stemmed from default Pay As You Earn (PAYE) rules used to collect income tax. The PAYE system is the government’s primary method for collecting income tax, national insurance and student loan payments directly from an employee’s wage slip. It also deducts taxes from private or workplace pension withdrawals. Under current rules Brits can access their pension pot from age 55, with 25 per cent of the total value of the pot taken tax-free. But in some circumstances, a single withd