If you’ve taken money from your pension recently, you might have noticed more tax deducted than you expected. You’re not alone.

Between April and June, HMRC refunded almost £49 million to pensioners who’d been overcharged — around 13,000 refunds, averaging £3,800 each.

Why it happens

It comes down to how HMRC processes first-time withdrawals.

If you take a lump sum for the first time, their system assumes it’s a regular monthly income. So, if you withdrew £10,000 for a holiday, HMRC might treat it as if you’re now earning £120,000 a year — and tax you accordingly.

It’s not a penalty — just an administrative quirk — but you still have to reclaim the money, which can take weeks or even months.

How to reduce the risk

Some people use the so-called ‘£1 pension trick’ — taking a small withdrawal first so HMRC has a more accurate idea of your income before you take a larger sum. This can help ensure you’re taxed more fairly from the start.

But that’s just one tactic. The real opportunity is in planning when and how you access your pension so you keep more of what you’ve worked for.

Why planning matters

For many retirees, pensions aren’t just for extras — they’re the main source of income.

If more tax than necessary is taken upfront, it can disrupt your budget or delay important plans, from fixing the roof to helping family. Even if you can reclaim it, the wait can be stressful, especially on a fixed income.

Careful planning — part of our Flourish and Protect approach — helps you avoid these pitfalls, keep your income steady, and preserve your peace of mind.

How advice can help

A qualified financial planner can:

• Work out the most tax-efficient withdrawal strategy

• Show how withdrawals fit into your wider retirement plan

• Flag other tax traps you may not have considered

With the right guidance before you start drawdown, you can make your pension work harder for you — without lending thousands to HMRC interest-free.