Thousands of retirees are being hit with average overpayments of £3,160 each due to problems with how HMRC's tax coding system handles pension withdrawals.
Despite Government efforts to speed up corrections, experts say the system remains fundamentally flawed.
Fresh figures reveal the scale of the issue, with nearly 14,000 people forced to reclaim their own money from the taxman during the first three months of 2026.
The problem stems from a mismatch between how the PAYE system operates and how pensioners actually access their retirement savings, leaving many significantly out of pocket while waiting for refunds.
Between January and March this year, HMRC repaid more than £44.1million to pensioners who had been incorrectly taxed when accessing their retirement funds flexibly.
Although the number of reclaim forms submitted fell by approximately nine per cent compared with the same quarter last year, the total sum returned remained virtually unchanged.
This points to a significant shift in the nature of the problem.
The typical refund has climbed to just over £3,160, representing a rise of nearly 10 per cent year on year.
HMRC repaid more than £44.1million to pensioners who had been incorrectly taxed when accessing their retirement funds flexibly
| GETTYFewer individuals may be caught out by emergency tax codes, but those affected are losing substantially larger amounts before corrections are made.
Adam Cole, retirement specialist at Quilter said: "HMRC has improved the speed of repayments, but these figures show the system is still fixing errors rather than preventing them.
"Until pension taxation better reflects how people actually access their money in retirement, thousands of savers will continue to face unnecessary complexity and cashflow disruption."
He explained the root cause of these ongoing errors: "PAYE was designed for predictable monthly earnings, not ad hoc pension withdrawals, and as a result it continues to generate avoidable overpayments that have to be corrected after the fact."
LATEST DEVELOPMENTS:
The tax system essentially treats irregular pension access as though it were regular employment income
| GETTYThe tax system essentially treats irregular pension access as though it were regular employment income, applying emergency codes that assume the withdrawal amount will be repeated throughout the year.
This triggers excessive deductions that must subsequently be reclaimed.
Mr Cole continued: "All of this is happening at a time when tax pressure on retirees is increasing. With the personal allowance frozen until April 2031 and the state pension taking up a growing share of it, more people are being dragged into tax.
"When flexible pension withdrawals are then layered on top, emergency tax becomes more likely and more costly."
Those who have been overtaxed can typically recover their money within 30 days by submitting the appropriate HMRC form
| GETTYHow to claim
Those who have been overtaxed can typically recover their money within 30 days by submitting the appropriate HMRC form.
The correct paperwork depends on individual circumstances: form P53Z applies when a pension pot has been entirely withdrawn and the person remains employed or receives benefits, while form P50Z is for those who have fully accessed their pot but are neither working nor claiming benefits.
Form P55 should be used when only a portion of the pension has been taken.
One strategy to minimise the risk of excessive deductions is to make a modest initial withdrawal first, prompting HMRC to assign the correct tax code before larger sums are accessed.