HMRC repaid a total of £57m to people who overpaid tax when they flexibly accessed their pensions in Q2 2024, the latest government Pension Schemes Newsletter has revealed.

This represents a £15m increase compared to the £42m of repaid pension tax overpayments in the first quarter of 2024.

According to the update, HMRC repaid a total of £56,925,219 between 1 April 2024 and 30 June 2024, with an average tax reclaim of £3,540 per saver across 16,079 reclaim forms.

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 16,079 forms during the period, including 11,449 P55 forms, 3,612 P53Z forms, and 1,018 P50Z forms.

The Q2 pension tax repayment has brought the total amount reclaimed by people overtaxed on pension withdrawals to almost £1.3bn since pension freedoms were introduced in 2015.

Commenting on the figures, AJ Bell director of public policy, Tom Selby, said: “HMRC’s outdated approach to the taxation of flexible pension withdrawals continues to hit hard-working savers, with the latest official figures revealing almost £1.3bn has now been repaid to savers who were overtaxed on their first withdrawal and filled out the relevant HMRC form to claim their money back.

“Worryingly, the average reclaim per person spiked to £3,540 during the latest quarter, the third highest three-month figure on record.

“The true overtaxation number will likely be substantially higher. In particular, people on lower incomes who are less familiar with the self-assessment system might be less likely to go through the official process of reclaiming the money they are owed. As a result, they will be reliant on HMRC putting their affairs in order.

“It is simply unacceptable that, almost a decade on from the introduction of the pension freedoms, the government has failed to adapt the tax system to cope with the fact Brits are able to access their pensions flexibly from age 55, instead persisting with an arcane approach which hits people with an unfair tax bill, often running into thousands of pounds, and requires them to fill in one of three forms if they want to get their money back within 30 days.”

Hargreaves Lansdown head of retirement analysis, Helen Morrissey, added that it was “inconceivable” to think that people are still being overtaxed on their first pension withdrawals more than nine years after pension freedoms were introduced.

“Almost £57m has been overpaid in the most recent quarter alone,” she continued. “Many of these people will not have been expecting this, and will have had a nasty shock when their tax bill was way higher than expected. This can cause them huge problems: A tax nightmare is not the way to start your retirement.

“Of course, you can get a refund – either by waiting until the end of the tax year or filling in one of a number of forms known as the P55, P53Z or P50Z, but this is a complication many people do not need and it’s a situation that should have been resolved years ago.

“The reason for the overtaxing is that you can be put on an emergency rate of tax whereby HMRC treats it as though that first payment will be repeated every month. You can try to mitigate this by making your first pension withdrawal a small one if possible. If you do get caught out, be sure to take swift action by filling out a form and getting your money back as soon as possible.”

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