A £5 indicates no postage, which sounds as though the label has indeed fallen off.
You can actually pay the fee online too, via the RM website. I have never heard RM say the line they will refund her with the proof of postage. That is not how it works when she goes to the post office to collect. That is your responsibility as the seller, to take that up with Royal Mail separately.
The item will be held for 18 days, before being returned to you. The issue you potentially have is that you do need to refund if the buyer is not being cooperative and they have opened an INR case. Problem being you refund them, they could then go and pay the fee due and keep the item too. (which I may add is morally wrong). When did they open the case? If you paid today online via Royal Mail they could get that item delivered tomorrow potentially. The other problem is that if the label fell off, then there is no form of proof of delivery.