Pension savers reclaimed £48.56m in overpaid tax between July and September after taking money from their pensions under flexibility rules.

The number of reclaim forms submitted to HMRC rose 11% year on year to 13,721 (Q3 2024: 12,331).

The rise potentially reflects an increase in the proportion of pensions being withdrawn ahead of the upcoming Budget and changes to the IHT treatment of pension from April 2027.

Jon Greer, head of retirement policy at Quilter, said that HMRC’s latest figures show the need for further reform.

He said: “A decade after the introduction of Pension Freedoms, it remains extraordinary that thousands of people are still being overtaxed every quarter simply for accessing their own savings. The system continues to work against the very flexibility it was designed to promote.

“Although HMRC has made changes to speed up repayments, these figures show the underlying problem persists. The PAYE system was built for regular employment income, not one-off pension withdrawals, and it continues to cause unnecessary complexity for retirees.”

He added that the data also suggests speculation around changes to pension tax relief could be prompting some savers to make unwise decisions.

He said: “This quarter’s data also land at a time of significant Budget uncertainty, with speculation about changes to pension tax relief and allowances prompting some people to act hastily rather than wait. Those decisions, often driven by fear of future rule changes, risk damaging well laid future financial plans. It underlines how vital stability and clear communication are if the Government wants to maintain confidence in the pension system.”

The proportion of pensions being drawn down at an annual rate of 8% or over has hit its highest recorded level for pots of all sizes, according to separate analysis of the latest FCA data. Drawdown at 8% is considered nearly twice the rate considered safe and sustainable.

Nearly half, 45%, of all pension pots are being withdrawn at 8% or higher, according to the analysis by retirement specialist Broadstone. It marks the highest proportion recorded and is up two percentage points from 2023/24.

The picture was replicated across all sizes of pension pot, the firm said, with increases of at least two percentage points in every category.