HMRC is Refunding Thousands of Pensioners Who Were Overcharged Tax on Pension Withdrawals

Have you recently withdrawn money from your pension and been shocked by how much tax was taken? You’re not alone. HMRC is refunding thousands of pensioners who were overcharged tax on pension withdrawals — and many people don’t even realise they’re owed money.

Every year, pensioners across the UK lose out because of the emergency tax codes applied to lump sum withdrawals. This means you could be due a tax refund on your pension — sometimes worth thousands of pounds — without even knowing it.

In this guide, we’ll break down why the overcharging happens, how to spot if you’re affected, and what steps you can take to claim your money back from HMRC.

Let’s make sure you get what you’re owed.

Why is HMRC refunding thousands of pensioners on pension withdrawals?

Many UK pensioners are discovering that they were overcharged tax when accessing their pension savings — particularly when withdrawing lump sums. HMRC has started refunding millions in overpaid taxes due to the use of emergency tax codes.

What causes the overcharging on pension withdrawals?

Many UK pensioners are unknowingly overcharged tax when they make pension withdrawals — especially when taking out a lump sum. HMRC has admitted to refunding tens of thousands of pensioners each year due to incorrect “emergency tax codes” applied during withdrawals.

Key reason: When you take money from your pension for the first time, it’s often taxed using a ‘Month 1’ emergency tax code, which assumes you’ll be making that same withdrawal every month.

This results in higher-than-necessary tax deductions, especially if it’s a one-off lump sum or your annual income is below the personal allowance (£12,570 for 2025/26).

“Emergency tax can hit pensioners hard when they access their savings. But it’s your right to claim it back.”
— Steve Webb, former Pensions Minister

How Do Pension Withdrawals Get Taxed in the UK?

Pension withdrawals are taxed as income, depending on the amount withdrawn and your total income for the tax year.

What triggers an emergency tax code on pensions?

You’re taxed under an emergency tax code if:

• You withdraw from your pension for the first time

• Your provider doesn’t have your full tax details

• The PAYE system doesn’t reflect your actual earnings

This code assumes monthly income, leading to an inflated tax deduction.

What is the impact of emergency tax on a lump sum withdrawal?

For example, if you withdraw £10,000 from your pension:

• You might be taxed as if you’ll receive £120,000 per year

• This could deduct 40% tax, even if your actual income is within basic tax limits

How Can You Tell If You’ve Overpaid Tax on Pension Withdrawals?

You may have overpaid if:

• Your pension provider used an emergency tax code

• You made a one-time withdrawal

• Your total income is within or close to the tax-free threshold

• Your tax code starts with ‘OT’, ‘BR’, or is marked as ‘Month 1’

To determine the amount you should have paid, use the HMRC tax calculator.

How Can You Claim a Pension Tax Refund from HMRC?

The good news is that you may get your money back if you overpaid taxes. HM Revenue and Customs has a process for claiming refunds based on the type of withdrawal you made.

Which HMRC forms should you use for a pension tax refund?

Depending on your situation, you’ll need one of the following:

You can claim:

• Online via GOV.UK: Claim a tax refund on a pension lump sum

• Or by post, using printed versions of the above forms

How long does it take to get the refund?

• HMRC typically processes claims within 30 days

• Typically, checks or bank transfers are used to make payments

Can You Avoid Overpaying Tax on Future Pension Withdrawals?

Yes, and it’s easier than you think. Taking a few smart steps can help you prevent future overpayments and keep more of your pension.

What steps can you take to avoid emergency tax next time?

To reduce the chance of overpaying:

• Wait until your provider has your latest tax code

• Make smaller initial withdrawals

• Withdraw at the end of the tax year, once your income is clearer

• Contact HMRC to ensure they have updated income records

Should you speak to a financial adviser?

Yes. A regulated pension adviser can help:

• Plan tax-efficient withdrawals

• Maximise your tax-free allowances

• Avoid pitfalls with drawdowns

“Getting advice before making pension withdrawals can prevent costly tax mistakes.”
— Kay Ingram, Chartered Financial Planner

What Happens If You Don’t Claim Your Pension Tax Refund?

If you don’t claim:

• Overpaid taxes may eventually be refunded by HMRC at the conclusion of the tax year

• However, this can take several months

•  Meanwhile, you might lose out on thousands of pounds

Example: In 2024, over £45 million was refunded to pensioners who claimed directly. Those who waited had to rely on slower end-of-year adjustments.

Who Is Eligible for a Tax Refund on Pension Withdrawals?

You are eligible if:

• You made a pension withdrawal

• You were charged emergency tax

• Your total annual income doesn’t justify the tax deducted

• You haven’t claimed this refund before

Conclusion: Don’t Let HMRC Hold Your Money – Check If You’re Owed a Refund

Due to emergency tax rules on pension withdrawals, thousands of UK retirees have unintentionally overpaid taxes. The good news? HMRC is refunding thousands, and you can get your money back — but you need to act.

Remember:

• Check if you were overcharged

• Use the correct HMRC form (P55, P50Z, P53Z)

• File online or by post for a faster refund

• Speak to a financial adviser for help with future planning

Call to Action:

👉 Check your last pension withdrawal — if your tax looked too high, you might be due a refund.
👉 Visit the official HMRC portal: Claim a Tax Refund
👉 Or consult a pension adviser today — it could save you thousands.

FAQs: Pension Tax Refunds from HMRC

1. How long does it take to get a tax refund from HMRC after a pension withdrawal?

HMRC usually processes claims within 30 working days, and refunds are paid via bank transfer or cheque.

2. How many UK pensioners are higher rate taxpayers?

Around 1.5 million UK pensioners pay higher rate tax, as per HMRC estimates.

3. How many times can you take 25% tax-free from your pension?

You can usually take 25% of your total pension pot tax-free, either all at once or in chunks.

4. What happens if I overpaid pension contributions?

You may be able to get a refund or carry the excess forward for future tax relief.

5. How do I reclaim my HMRC overpayment?

You can claim online or by post using the correct HMRC form for your withdrawal type.

6. How long does an HMRC pension tax refund take?

Most refunds are processed in about 30 working days, sometimes faster online.