Thousands of pension savers across the UK have successfully reclaimed significant sums from HM Revenue and Customs (HMRC) after being incorrectly charged emergency tax on their first withdrawal. New figures reveal that between July and September 2025, HMRC repaid a staggering £48,560,205 to affected individuals, with the average refund standing at £3,539.
What is Emergency Tax and Why Does It Happen?
The issue commonly arises when someone accesses their pension pot for the first time. HMRC's systems may mistakenly assume that the initial lump sum withdrawal will be repeated every month for the rest of the tax year. This triggers an emergency tax code, often resulting in a vastly inflated tax bill. While 25% of a pension can usually be taken tax-free from age 55, the remaining 75% is subject to income tax at your normal rate. The emergency code applies an incorrect calculation, leading to substantial overpayments.
Clare Moffat, a pensions expert at Royal London, explained the common pitfall: "The temptation is to make your first withdrawal a big one to splash out a little after years of careful saving. Unfortunately, that’s exactly how you end up paying a large chunk of your life savings in emergency tax."
How to Check and Claim Your Money Back
The key indicator that you are being charged emergency tax is your tax code. You should check if it ends in M1 (or 'Month 1'). If it does, you have likely overpaid.
The good news is you do not have to wait until the end of the tax year for HMRC to automatically reconcile your account. You can claim your refund immediately by filling out an online form. The specific form depends on your circumstances:
- If you’ve emptied your pension pot via flexible access and are still working or receiving benefits, use form P53Z.
- If you’ve emptied your pot and are not working or receiving benefits, use form P50Z.
- If you’ve only taken part of your pension flexibly, use form P55.
Expert Advice and Official Reassurance
Clare Moffat suggests one strategy to mitigate the problem: "You can trigger a smaller emergency tax bill when taking money out of your pension by making a small initial withdrawal first." However, she acknowledges this is less practical if a large sum is urgently needed.
An HMRC spokesperson provided reassurance, stating: "Ultimately, nobody overpays tax as a result of taking advantage of pension flexibility. We will repay anyone who pays too much because they’re on an emergency tax code and individuals can claim a repayment much earlier if they wish."
If you made your first pension withdrawal recently, it is crucial to check your tax code and payslips. With average refunds running into thousands of pounds, taking a few minutes to verify your position could result in a very welcome financial boost.
