Save, make, understand money


Pension savers reclaim £38m in overtaxed pot withdrawals

Pension savers reclaim £38m in overtaxed pot withdrawals
Paloma Kubiak
Written By:
Paloma Kubiak

The overzealous and out-of-date tax system has seen thousands of savers withdrawing cash from pension pots having to reclaim £38m from HMRC in just three months.

In the three months to December 2023, £38.7m was repaid to over 12,000 people who paid too much tax on pension withdrawals. This averages out at £3,216 each.

Given the latest quarterly figures, it means nearly £1.2bn has now been reclaimed by people overtaxed on pension withdrawals since the dawn of pension freedoms in 2015.

Pension freedoms allow anyone over the age of 55 to access their pension pots with the first 25% being tax-free.

However, when someone takes their first and single ‘flexible’ withdrawal from their defined contribution pension, providers apply tax on a ‘month one’ basis. This means the withdrawal is counted as if the same amount of money will be taken every month during the financial year, rather than viewing it as a one-off withdrawal.

The emergency tax rate applied is usually calculated on a much higher annual withdrawal than the pension saver actually takes, meaning shock tax bills for many.

Tom Selby, director of public policy at AJ Bell, said: “Depressingly, the true overtaxation number will likely be substantially higher. In particular, people on lower incomes who are less familiar with the self-assessment process might be less likely to 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.

“It is simply unacceptable that 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 which 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.”

How to reclaim your overtaxed pension money

It is possible to get your money back within 30 days if you fill out one of three HMRC forms, otherwise it will be repaid at the end of the tax year.

Which one you need to fill depends on how you accessed your retirement pot:

  • P55 – used by claimants when the payment didn’t use up the pension pot and individuals aren’t taking regular payments. It can only be used if a pension provider can’t refund you. HMRC received 7,307 claims in the three months to December 2023.
  • P53Z – used by claimants where the payment used up your pension pot and you have other taxable income such as if you’re working or receiving benefits. HMRC received 3,738 forms.
  • P50Z – used by claimants if the payment used up your pension pot and you have no other income in the tax year. HMRC received 1,014 claims.


If you’re taking regular income via drawdown then you shouldn’t need to take any action, as HMRC will adjust your tax code to ensure the correct amount is collected.

Selby added: “We are approaching the 10-year anniversary of former Chancellor George Osborne’s bombshell pension freedoms announcement at the March 2014 Budget. While those reforms have been widely welcomed by savers, who now have total flexibility over how they access their retirement pot from age 55, the Government’s own tax systems remain stuck in the dark ages.”