**Over Half a Million UK Pensioners Hit by Excessive Taxation on Retirement Withdrawals**
Over 500,000 retired individuals across the UK have been left out of pocket after being excessively taxed when accessing their pension savings—an issue which has been roundly criticised by campaigners and financial experts. According to recently released figures from HM Revenue and Customs (HMRC), a staggering £48.7 million was refunded to 23,000 pension savers in excessive tax payments between April and June 2025 alone. Many of those affected had been forced to pay thousands of pounds more than necessary, with the typical refund during the last quarter amounting to around £3,200.
Since the implementation of ‘pension freedoms’ in 2015, which allowed individuals over the age of 55 to access their pension pots as and when they choose, the cumulative total of pension tax overpayments has now surged to £1.2 billion, impacting more than 574,000 people. The crux of the issue is HMRC’s reliance on emergency tax codes when savers make their first flexible withdrawal from their pension, usually resulting in significantly higher initial deductions.
Under these emergency tax codes, withdrawals are taxed as if the sum taken out would be repeated every month for a year, regardless of the individual’s actual intentions. This flawed methodology often means that pensioners find themselves overtaxed, sometimes by substantial amounts—only discovering the mistake later, when they attempt to reconcile their finances.
The situation has not gone unnoticed by experts and campaigners. Helen Morrissey, retirement specialist at Hargreaves Lansdown, spoke out strongly: “These people have diligently planned for their futures, only to encounter a tax system that leaves them hundreds or thousands out of pocket and which can take months to resolve.” She further explained that while people are eligible to reclaim overpaid tax through specific HMRC forms, many pensioners are unaware of this process and are forced to wait until their annual tax return before receiving any redress.
The question has increasingly been raised as to why the recruitment of emergency tax should remain standard practice, particularly given mounting evidence of the financial harm it causes. Steve Webb, a former Pensions Minister and partner at LCP, did not hold back in his assessment: “It remains a disgrace that HMRC continues to overtax hundreds of thousands of people every year and expects them to fill in forms to get their money back.”
In response, HMRC has insisted that the current system ensures nobody overpays tax in the long run. A spokesperson explained: “Nobody overpays tax as a result of taking advantage of pension flexibility. People can claim any overpaid tax back from HMRC. We aim to process these repayments within 30 days.” However, critics point out that this leaves individuals subject to lengthy waits and requires proactivity and financial knowledge that not all pensioners have—particularly problematic at a time when the cost of living is soaring.
Experts argue that the current approach places an unfair administrative and financial burden on retirees, many of whom are already struggling to make ends meet. Helen Morrissey warned that, given the ongoing cost of living pressures, there is a real risk the problem could become more acute. “With pressure on people’s finances, many may turn to their pension for help and risk being taxed too much at a time when they can least afford it,” she commented.
Calls are growing for an urgent overhaul of the system so savers are taxed correctly at the point of withdrawal, rather than being required to navigate complex bureaucratic hurdles to reclaim what is rightfully theirs. Campaigners believe a streamlined process, or improved communication from both pension providers and HMRC, could mitigate much of this distress and uncertainty.
With the scale of improper taxation running into hundreds of millions of pounds and affecting some of society’s most financially vulnerable, pressure is mounting on the government and HMRC to introduce a more efficient and compassionate system—one that delivers fairness and certainty to all retirees. As the debate continues, it remains to be seen whether meaningful changes will be implemented to address what many have called a chronic flaw in the pension taxation regime.