Thousands of pensioners across the UK may be owed a substantial refund from HM Revenue and Customs (HMRC) following the misapplication of emergency tax when accessing pension savings.
Between April and June 2025, HMRC returned nearly £48.7 million to individuals who had been overcharged after withdrawing from their retirement pots—an average of £3,815 per person, according to reports. The situation reflects a continuing pattern since the introduction of pension freedoms in 2015.
How Emergency Tax Affects First-Time Pension Withdrawals
Under current pension rules, individuals aged 55 and over are permitted to access up to 25% of their pension pot tax-free. The remaining 75% is subject to income tax, calculated at the individual’s standard rate. However, when a person makes a withdrawal for the first time, HMRC often applies what is known as a “month one” tax code. This emergency code assumes the same amount will be withdrawn each month for the remainder of the tax year.
This tax treatment frequently results in a disproportionately high deduction, especially for those making a one-off or irregular lump sum withdrawal. The latest data confirms that 12,767 individuals submitted refund claims between April and June, with each receiving a refund of approximately £3,815 on average.
According to Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, “The overpaid pension tax saga continues to drag on. In just three months, HMRC has repaid a whopping £48.7million to people who paid too much tax for simply accessing their pension.” She noted that this issue is particularly disruptive for retirees who rely on lump sums to finance major plans, such as travel or home improvements.
Reclaiming Overpaid Tax: Process and Implications
Those affected can reclaim their overpaid tax by completing one of three specific HMRC forms, depending on how their pension was accessed. According to official guidance:
- Individuals who emptied their pension pot and are still working or receiving benefits should use form P53Z.
- Those who emptied their pot and are not working or claiming benefits must use form P50Z.
- Anyone who only accessed part of their pension should complete form P55.
Alternatively, affected individuals may wait for HMRC to issue an automatic refund at the end of the tax year. However, this may delay access to funds at a time when they are most needed.
Ms Morrissey also advised that making a smaller initial withdrawal may reduce the likelihood of excessive tax. “If you do get clobbered with a big tax bill,” she said, “you will need to fill out one of three forms so that HMRC can process the refund.”
