HMRC says pensioners will be handed free payments worth £3,600

Pensioners are receiving payments of more than £3,000 thanks to a HMRC mistake. HMRC revealed that between July and September 2024, the tax office paid out £44.2million back to 12,000 people who paid tax on their pension when first accessing it. This works out as an average payout of £3,691 per person.

Jon Greer, head of retirement policy at Quilter, says the recent figures show that this continues to be a "substantial issue" as Brits look to ease their financial pressures by withdrawing from their pension savings. He added: "What’s particularly concerning is that we may see a sharp rise in withdrawals in the next set of data, driven by growing anxieties surrounding the upcoming budget.

"With persistent rumours and the government’s rhetoric pointing to a ‘painful’ fiscal event, many savers may take unplanned action to take tax-free cash from their pension pots, fearing potential changes to pension taxation."

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Jon says the current tax system has "inherent flaws" and places a "heavy burden" on retirees as the PAYE system struggles to accommodate the way pensions are accessed. He added: "It is vital that those considering pension withdrawals amid these budget rumours seek professional financial advice.

"A rush to take money out could result in unnecessary tax liabilities, and careful planning is essential to avoid making decisions that might compromise their retirement plans. Advisers can help structure withdrawals effectively, ensuring savers do not fall foul of the tax system’s pitfalls.

“Until the system is changed, we are likely to continue seeing many savers caught out and forced to reclaim significant sums of money.” You may be able to get a tax refund (rebate) if you’ve paid too much tax. Use this tool to find out what you need to do if you paid too much on pay from a job, job expenses such as working from home, fuel, work clothing or tools, a pension, a Self Assessment tax return, a redundancy payment, UK income if you live abroad, interest from savings or payment protection insurance (PPI), income from a life or pension annuity, foreign income and UK income earned before leaving the UK.