Pensioners owed thousands after HMRC error as Brits urged to claims their cash now

Thousands of pensioners across the UK are being urged to check whether they are owed thousands of pounds in tax refunds after an HMRC error left many overpaying on their pension withdrawals.

The issue stems from the way HMRC applies "emergency" tax codes when people make lump-sum withdrawals from their defined contribution (DC) pensions. Introduced under the pension freedoms rules in 2015, these withdrawals are often mistakenly treated as if they will recur every month for the remainder of the tax year, resulting in people being charged far more tax than they owe.

New figures obtained by Royal London through a Freedom of Information request show that around 60,000 pension savers claimed refunds in 2023-24, a 20% rise compared with the previous year.

Of these, around 11,700 people received refunds of £5,000 or more, while 2,400 were handed back over £10,000 each. In a handful of cases, refunds exceeded £100,000. The average repayment was £3,342.

Clare Moffat, pensions expert at Royal London, welcomed HMRC's pledge to overhaul its taxing system but warned that the problem is far from solved.

"HMRC recently announced an overhaul of its emergency taxing codes on pensions, which it promises will deliver quicker refunds, but that doesn't mean people won't still be charged the higher rate in the first place," she said.

An HMRC spokesperson added: "Ultimately, nobody overpays tax as a result of taking advantage of pension flexibility. We will repay anyone who pays too much because they're on an emergency tax code, and individuals can claim a repayment much earlier if they wish."

Pensioners can check whether they have overpaid by logging into their Government Gateway account with their National Insurance number and ID verification. The PAYE section will show whether too much tax has been deducted.

Refunds can typically be claimed online through the HMRC app or website. Once confirmed, payments are usually made within five working days.

For those who are self-employed or receive income from other sources, refunds must be claimed through a self-assessment tax return.

With many pensioners already receiving refunds worth tens of thousands of pounds, financial experts are urging anyone who has made a one-off pension withdrawal to review their tax records, and claim back what they may be owed.