HM Revenue and Customs (HMRC) has reimbursed tens of thousands of pensioners after applying an emergency tax code to their pension withdrawals. Between January and March 2025, more than \u00a344 million <\/strong>was refunded, highlighting ongoing challenges within the tax system linked to pension flexibility.<\/p>\n\n\n\n

The issue centres on the use of the \u2018month 1<\/strong>\u2019 emergency tax code, automatically applied to one-off pension drawdowns. This often results in excessive taxation, requiring individuals to reclaim the overpaid amounts using official HMRC forms.<\/p>\n\n\n\n

Tens of Thousands Affected by Overpayment System<\/strong><\/h2>\n\n\n\n

According to HMRC data, \u00a344,003,977 in refunds <\/strong>were issued between 1 January and 31 March 2025. The average repayment per saver stood at \u00a32,881, underscoring the scale of the problem for those accessing their retirement funds under the pension freedoms introduced in 2015.<\/p>\n\n\n\n

Over 15,000 repayment forms were processed in the first quarter of 2025, including 9,694 P55<\/em> forms for partial pension withdrawals, 4,409 P53Z<\/em> forms for lump sum payments without other income, and 1,171 P50Z<\/em> forms for full pension withdrawals with no other income. <\/p>\n\n\n\n

According to AJ Bell<\/em>\u2019s director of public policy, Tom Selby<\/em><\/a>, the official figures are \u201clikely to be only the tip of the iceberg\u201d, as many savers rely on end-of-year adjustments rather than submitting a reclaim form.<\/p>\n\n\n\n

Selby criticised the continued use of a \u201cdecade-old\u201d system that fails to reflect pension flexibility reforms. \u201cIt is simply unacceptable that after all this time the government has still not managed to adapt the tax system,\u201d he said, noting that overtaxation <\/strong>can amount to thousands of pounds and create significant short-term financial pressure.<\/p>\n\n\n\n

Calls for Urgent Reform Amid Plans for Tax Code Streamlining<\/strong><\/h2>\n\n\n\n

The persistence of this taxation issue has led to calls for HMRC <\/a>to accelerate planned changes to the tax coding system. According to Jamie Clark<\/em><\/strong>, retirement specialist at Quilter<\/em>, the current process creates an unnecessary administrative burden and risks unintended financial consequences for retirees who make single, unplanned withdrawals.<\/p>\n\n\n\n

Clark acknowledged HMRC\u2019s efforts to simplify tax coding, which are expected to take effect in the current tax year<\/strong>. While this may reduce the number of overpayments, he warned that pension withdrawals will continue to pose challenges. <\/p>\n\n\n\n

\u201cMany people are still reliant on their pension savings to manage financial pressures, and any hasty decision to access these funds could not only result in unintended, and often unexpected, tax consequences, but they could also hamper longer-term financial plans.\u201d he said.<\/p>\n\n\n\n

Despite the recent refunds, many retirees <\/strong>remain unaware of the need to actively reclaim overpaid tax. Without system-wide automation or pre-emptive correction, experts suggest that overpayments will persist, and reliance on HMRC’s annual adjustments may leave many pensioners out of pocket for extended periods.<\/p>\n","protected":false},"excerpt":{"rendered":"

HMRC has issued substantial refunds to pensioners after they were overtaxed due to an outdated tax code. With over \u00a344 million returned, pensioners are getting back the money wrongly deducted from their pensions. However, experts warn the system still needs urgent reforms to prevent future issues.<\/p>\n","protected":false},"author":10,"featured_media":108895,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[46],"tags":[],"class_list":["post-108893","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-social-welfare","generate-columns","tablet-grid-50","mobile-grid-100","grid-parent","grid-33","no-featured-image-padding"],"_links":{"self":[{"href":"https:\/\/en.econostrum.info\/uk\/wp-json\/wp\/v2\/posts\/108893","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/en.econostrum.info\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/en.econostrum.info\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/en.econostrum.info\/uk\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/en.econostrum.info\/uk\/wp-json\/wp\/v2\/comments?post=108893"}],"version-history":[{"count":2,"href":"https:\/\/en.econostrum.info\/uk\/wp-json\/wp\/v2\/posts\/108893\/revisions"}],"predecessor-version":[{"id":108896,"href":"https:\/\/en.econostrum.info\/uk\/wp-json\/wp\/v2\/posts\/108893\/revisions\/108896"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/en.econostrum.info\/uk\/wp-json\/wp\/v2\/media\/108895"}],"wp:attachment":[{"href":"https:\/\/en.econostrum.info\/uk\/wp-json\/wp\/v2\/media?parent=108893"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/en.econostrum.info\/uk\/wp-json\/wp\/v2\/categories?post=108893"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/en.econostrum.info\/uk\/wp-json\/wp\/v2\/tags?post=108893"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}