
HMRC told readers of its pension scheme newsletter that, from April, they will no longer be charged with an emergency tax code once they make a private pension withdrawal.
This happens because, since 2015, providers have applied the tax on a ‘month one’ basis, which assumes the same amount of money will be taken out every month during the financial year.
To claim any overpayment in tax, the onus is on pensioners to fill out a reclaim form, but under new rules, that will happen automatically “in real time” with each pension withdrawal.
In the three months to the end of 2024, there were 14,000 reclaim forms processed, with an average of £3,389 claimed back by pensioners.
In its newsletter, HMRC said: “From April 2025, we are improving how tax code information is used for those people who are new to receiving a private pension, so they pay the right amount of tax from the outset.

How life insurance can benefit your health and wellbeing over the decades
Sponsored by Post Office
“We will automatically update the tax code for customers who are on a temporary tax code and would benefit from being on a cumulative code – this means they’ll avoid an overpayment or underpayment at the end of the year.
“There is no need to contact HMRC, and once a tax code has been changed, we’ll inform customers by letter or digitally if they’ve signed up for paperless in the HMRC app or online”.
‘At long last, HMRC has listened’
Steve Webb, partner at pension consultant LCP, has campaigned against the arbitrary emergency taxing of private pension holders and lauded the decision to update the system.
Webb said: “It is great news that, at long last, HMRC has listened to the voices of ordinary taxpayers and changed this scandalous system. For too long, hundreds of thousands of people have been overtaxed and had to jump through hoops to claim back their own money.
“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 [that] pension savers face when they try to access their hard-earned cash”.
Meanwhile, overtaxed pensioners have been charged nearly £1.4bn since pensioners were able to access 25% of their retirement pot tax-free, according to HMRC figures.
Tom Selby, director of public policy at AJ Bell, described the level of overtaxation shared in the HMRC’s data as “likely only the tip of the iceberg as it only captures those who fill in the relevant HMRC reclaim form.”
He said: “In reality, lots of people, such as those on lower incomes who are less familiar with the self-assessment system, will not go through the official process of reclaiming the money they are owed. As a result, they will be reliant on HMRC putting their affairs in order.”
Selby added: “It is simply unacceptable that, almost a decade on from the introduction of the pension freedoms, the Government has failed to adapt the tax system to cope with the fact Brits are able to access their pensions flexibly from age 55, instead persisting with an arcane approach [that] hits people with an unfair tax bill, often running into thousands of pounds, and requires them to fill in one of three forms if they want to get their money back within 30 days.”
What to do if you’ve been overtaxed
He also recommended that, if you are over 55, you take one smaller single withdrawal in a tax year so HMRC can apply the correct code for a potential second, larger withdrawal.
Here are the three forms to complete and under which circumstances you’d need to fill each one in.
Those forms are:
- If you’ve emptied your pot by flexibly accessing your pension and are still working or receiving benefits, you should fill out form P53Z
- If you’ve emptied your pot by flexibly accessing your pension and aren’t working or receiving benefits, you should fill out form P50Z
- If you’ve only flexibly accessed part of your pension pot, then use form P55
If you fill out the correct form HMRC notes, you should receive a refund of any overpaid tax within 30 days.