The Treasury estimated pension changes introduced in 2015 would bring in £920million over the first two years of the policy, but HMRC has in fact pulled in double that at £2.6billion.
Experts are now warning savers to avoid making mistakes that will mean higher tax bills and less money in retirement.
Fidelity International’s head of pensions policy, Richard Parkin, said: “It’s clear that the rush to get cash out is having people pay more tax than they need to.
“Before accessing pension savings people should consider whether they really need the money.
“It might feel more accessible in a bank account but it could have a significant cost in terms of lost returns and tax.
“Where people do need to access their pensions they should consider doing that in a way that minimises tax by spreading withdrawals.
“So think carefully before withdrawing monies and if in doubt, seek expert help as the decisions you take here cannot be undone.”
Mr Parkin pointed out five mistakes that will mean higher tax bills.
1. Large unnecessary withdrawals
The first 25 per cent of a pension pot accessed is tax-free but after that any withdrawals are taxed as income in the year that it is taken.
This means that it could be better to split withdrawals over a number of years where possible.
For example, a £30,000 earner cashing in a £30,000 pot would end up paying higher rate tax on £9,500 of that money giving a total tax bill of £6,400.
If they’d taken half the pot last year year and half next this year they would only pay tax at the basic rate and save themselves £1,900.
2. Putting tax free cash in the bank
Many people have taken money out of their pension just to keep it in a bank account, according to Mr Parkin.
This can mean paying more tax on a number of fronts.
Once in the bank any returns are subject to tax and deposits also count towards your estate for inheritance tax purposes.
It can also impact entitlement to state benefits.
3. Taking tax-free cash all at once
The first 25 per cent of a pot doesn’t have to be taken in one go.
Staggering this could bring down tax bills, and also leaves more invested to grow future tax free takings.
4. Taking tax free cash when you don’t pay tax
For anyone under the current personal income tax allowance of £11,500 for 2017/18, it may not make sense to take tax-free pension cash if the allowance hasn’t been used up.
For example, someone with £6,000 of unused personal allowance could take £8,000 from a pension plan and still pay no tax.
5. Taking the wrong amount of tax-free cash
Savers who were in a pension scheme before 2006 may be able to take advantage of what is called protected tax-free cash.
The rules are quite complex but could mean that savers are entitled to MORE than 25 per cent of pension savings as tax-free cash.
It is worth checking with you pension plan provider to see if you are eligible.
It would mean providing earnings details from before 2006.