The UK pension taxation system seems, in a roundabout way, somewhat screwed! It’s recently come to light that HMRC has been accidentally miscalculating triple lock hikes, overcharging 8.7 million pensioners who pay income tax to the tune of around £43.5million last year. This has been reportedly happening for the past 10 years. On average, people affected pay around £5 more than they should, but it’s still wrong.

Don’t worry – the incompetence is also balanced across private wealth. The infamous emergency tax trap ambushes anyone trying to access their private pension pot for the first time, treating a single withdrawal as if the saver is earning that same lump sum every single month. An emergency tax code is applied, costing pension savers much more than it should. Latest HMRC data showed that a staggering £44.1million was reclaimed for overtaxation in the first quarter of 2026.

As many as 13,942 reclaim forms were processed, with an average repayment of £3,165 each. It has been 11 years since the Government introduced “pension freedoms”, allowing people to access their pension pots flexibly when they reach 55. Every year, millions are overtaxed, and the figures are flagged to the tax office.

You’d think in the space of more than a decade, technological advancements and the trouble of needing to apologise to savers every year for the inconvenience would have prompted HMRC to do something about this. While it’s made a few changes – it improved its tax code system last year, so people taking regular pension drawdown income are moved from the emergency tax code to paying the right amount faster – it has yet to fix the problem for those taking a one-off withdrawal. Rather than waiting around for HMRC, here’s a quick workaround if you’re looking to dip into your pot. Make a small withdrawal first, even just £1, and HMRC is prompted to update your tax code. When you then take a larger sum, you are more likely to be taxed correctly.

Pension providers may set a minimum withdrawal amount, so it’s worth checking with them before you do it. If you have already been overtaxed, you can reclaim the money by completing the correct HMRC form. The form you need depends on your circumstances. For example, the P53Z if you’ve emptied your pot and are still working or on benefits; a P50Z if you’ve emptied your pot and aren’t working or on benefits; or a P55 if you’ve only taken part of your pot. HMRC says refunds are usually processed within 30 days. If you don’t claim, you will be refunded automatically at the end of the tax year.

For those who think they may be one of the 8.7 million overtaxed on their state pensions, HMRC has advised contacting them directly to amend any incorrect figures.

One in 20 of us has a missing pension worth £9,500 – could that be you?

If you’re the average Briton who has changed jobs between four and eight times over the course of your career, you could be due a big old pot of forgotten money. It’s thought that as many as one in 20 people have lost track of a pension worth £9,500 each on average. Auto-enrollment and frequent job changes are thought to be the primary cause of the problem. Each time someone moves to a new employer, their old pension pot is usually left behind. Without good records or consolidation, it’s naturally easy for people to forget what pensions they have.

You can use tracing services such as Pension Attention or Gretel to quickly locate an old pension. The Government also offers the free online Pension Tracing Service. You’ll need either the employer’s name or the pension provider’s name. The helpline will then be able to provide contact details so you can get in touch.

I spoke to a reader from Newcastle-under-Lyme last year about her success in tracking down an old pot. She was handed a £17,000 windfall, which she used for some much-awaited home improvements. She used Gretel, which she said managed to source the lost pension in just two days. So, if you’ve moved jobs or changed your address several times without updating your details, investigate this, as you could be sitting on thousands of pounds without knowing it. And importantly, always try to speak to a verified financial adviser before making big decisions. You can find one on www.unbiased.co.uk.

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