Pension WIN as Britons avoid tax raid on retirement savings - how to claim £4k refund from HMRC

Pension savers successfully recovered £49million in overpaid tax during the second quarter of 2025, according to newly released Government data. The figures from HM Revenue and Customs (HMRC) reveal that approximately 13,000 claims were handled between April and June, with each person receiving an average refund of £3,815.Since the pension freedom reforms began in 2015, the total amount returned to overtaxed savers has climbed to almost £1.5billion. These substantial sums highlight the ongoing impact of HMRC's taxation methods on retirement withdrawals, affecting thousands of people accessing their pension savings each quarter.The overtaxation occurs because HMRC applies what's known as a "Month One" calculation method to initial flexible pension withdrawals within a tax year. Under this system, the tax authority allocates just one-twelfth of a person's annual tax-free allowance to their first withdrawal, rather than considering their full yearly entitlement.This approach results in pension savers facing unexpectedly large tax deductions, frequently amounting to thousands of pounds. While individuals making regular withdrawals or multiple payments throughout the year typically see their tax position corrected automatically, those taking a single withdrawal often remain overtaxed unless they actively pursue a refund.Do you have a money story you’d like to share? Get in touch by emailing money@gbnews.uk.HMRC commits to processing refunds within 30 days of receiving the correct paperwork. Savers can avoid the overtaxation altogether by making a small initial withdrawal, which prompts HMRC to apply the proper tax code to subsequent larger withdrawals. Without submitting these forms, individuals must wait until the tax year ends for HMRC to automatically correct their tax position.Tom Selby, Director of Public Policy at AJ Bell, criticised the system as "outdated" and suggested the published statistics represent merely "the tip of the iceberg" since they exclude those who don't submit reclaim forms. He noted that whilst April 2025 brought improvements for regular drawdown recipients through faster tax code adjustments, single withdrawal takers continue facing overtaxation.Selby warned of additional complications ahead, highlighting Government proposals to apply inheritance tax to pensions from April 2027.LATEST DEVELOPMENTS:Pensioners could be owed £4,000 each as HMRC tax refund claims surge past 500,000 - check nowISA alert: Families rush to use little-known inheritance perk that could save thousands from HMRCInheritance tax raid on pensions 'throwing people's plans into disarray'He cautioned that this "convoluted process" would create further administrative burdens, with some beneficiaries needing to reclaim overpaid income tax, adding "yet more fiddly admin on taxpayers."Jon Greer, the head of retirement policy at Quilter, added: "The latest pension flexibility statistics reveal HMRC’s is still fighting the scourge of pension tax overpayment despite a streamlining the process of providing updated tax codes for people who are new to receiving a private pension, from the current tax year. "A total of 12,767 repayment claims were processed in the second quarter of the year, totalling £48,701,927, and around £92m for the year to date. "For the second quarter, this equates to just under £4,000 per refund, so HMRC’s changes might have resulted in marginally fewer claims but with a higher value compared to the previous quarter, although this was also slightly down on the same period the year before."