HMRC pays back £44m in overpaid pension tax: are you owed a refund?

HMRC refunded £44 million to pension savers between January and March 2025, new figures show, ahead of an overhaul to the pension tax code system.

More than 15,000 people reclaimed an average of nearly £3,000 after being taxed at an emergency rate when making pension withdrawals.

Here, Which? explains what's changing, how much has been overpaid and the ways you can claim a refund.

How much has been overpaid?

A total of £44,003,977 was repaid from 1 January to 31 March, according to the latest data from HMRC. Over 15,000 reclaim forms were processed during the quarter, with an average reclaim of £2,881.  

More than £1.4 billion has now been reclaimed by people overtaxed on pension withdrawals since 2015.

• Find out more: what can I do with my pension savings?

Why are pensions overtaxed?

Those wanting to access their pension pot can do so in two ways. The first is to take an uncrystallised fund pension lump sum (UFPLS). You can take a 25% lump sum of your pension tax-free, and then the rest is charged at your normal income tax rate.

The second is to take a lump sum from a pension drawdown plan. If you do this, 25% of your total pension savings is tax-free and any subsequent withdrawals are subject to income tax.

Your pension company collects the tax on your behalf, so the lump sum you get is paid net of tax. However, many people overpay tax the first time they withdraw from their pension. This is because your provider may not know what your tax code is or details of other income, if you have any.

If your provider doesn't have this information, withdrawals are taxed using a higher-rate emergency tax code, calculated on what's known as a 'Month 1' basis.

This means you'll be taxed as though the lump sum you're withdrawing will be repeated every month. For instance, a £10,000 withdrawal could see you being taxed as though your annual income is £120,000. If this goes unnoticed, it can make an unnecessary dent in your pension pot.

• Find out more: what is a pension drawdown?

HMRC to improve tax code process

From this month, the government will improve its tax code process so these people will be moved from an emergency code to paying the right amount of tax more quickly. HMRC will adjust tax codes to ensure that over the course of the year you are taxed the correct amount.  

HMRC made the announcement in its Pensions Schemes Newsletter, published on 23 January. It said it will inform those affected by letter or digitally that their tax code has been changed.

Steve Webb, former pensions minister and partner at LCP, added: 'This new system should mean that far more people are quickly moved on to the correct tax code and no longer end up with an overpayment of tax. 

'The tax system is complex enough as it is, and this change should hopefully reduce the complications which pension savers face when they try to access their hard-earned cash.'

Tax issues with ad-hoc withdrawals

While these changes will help many pensioners, those who make a single ad-hoc withdrawal from their pension may still be left out of pocket, according to the investment firm AJ Bell.

Tom Selby, director of public policy, says: 'One way savers planning to take a single withdrawal in a tax year can potentially avoid the shock of a big over-taxation bill is by taking a notional withdrawal first. 

'This should mean HMRC is able to apply the correct tax code to the second, larger withdrawal.'

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Could you be owed a pension tax refund?

If you are taking a steady stream of income via drawdown, you shouldn’t need to take any action as HMRC should adjust your tax code to ensure you pay the correct amount over the year. 

However, if you make a single withdrawal, it’s important to check you haven’t paid more than you should.

The process is relatively straightforward and can be done online via the government's tax refund website.

How to claim your refund

If you've overpaid tax, you'll need to fill out one of three claims forms:

P55

A P55 form should be used if you haven't withdrawn your entire pension pot and are not taking regular payments.

P53Z

A P53Z form should be completed if you have withdrawn all your pension and also receive other taxable income.

P50Z 

A P50Z form should be completed if you've withdrawn all your pension, but have no other taxable income. 

If you don't want to use the government's online service, you can fill out a form on-screen, print it off and post it to HMRC, or print off and fill in a form by hand. HMRC says you should receive a refund of your overpaid tax within 30 days.

The article was first published on 7 May 2023 and has been updated since to reflect HMRC's latest figures. Last update: 29 April 2025.