TL;DR: When someone takes their first taxable lump sum from a defined contribution pension under the pension freedoms, HMRC almost always applies an emergency "Month 1" tax code. That treats the single withdrawal as if it will be repeated every month, so a one-off payment is taxed at the higher and additional rates that would never actually apply. HMRC has refunded well over a billion pounds in overpaid pension tax since April 2015. The money is reclaimed by submitting one of three short forms (P55, P53Z or P50Z) and refunds usually arrive within 30 working days. Anyone who does not claim is reconciled by HMRC after the tax year ends, but waiting can mean being out of pocket for many months.
Last reviewed May 2026
Each quarter HMRC publishes how much it has refunded to people who have been emergency-taxed on a pension withdrawal. The totals are large and consistent: hundreds of millions of pounds returned every year, with cumulative repayments since the pension freedoms began in April 2015 now well into the billions. The reason the numbers are so persistent is built into the way PAYE handles a one-off pension payment from a brand new income source.
The problem is mechanical, not punitive. HMRC has no prior tax code for a pension provider it has never paid through before, so it tells the provider to use an emergency code on a "Month 1" basis. That code splits the personal allowance and the rate bands into twelfths and applies them as if the withdrawal will be repeated every month for the rest of the year. A single 30,000 pound flexible payment is then taxed as if it were the start of a 360,000 pound annual income, dragging part of it into the 40 percent and even the 45 percent bands.
The good news is the overcharge is recoverable, often within a few weeks. This guide explains why the overpayment happens, who it affects, exactly which form to use, and what to expect after the claim is sent.
Why HMRC overtaxes the first pension withdrawal
Pension providers operate PAYE. When a member takes their first flexible payment, the provider has not been issued an up-to-date tax code for that person, so HMRC tells it to use the emergency tax code on a non-cumulative or "Month 1" basis. The same applies to one-off uncrystallised funds pension lump sums (UFPLS) and to the taxable 75 percent of a flexi-access drawdown payment.
The emergency code applies a twelfth of the personal allowance and a twelfth of each rate band to that single payment. A withdrawal of, say, 20,000 pounds is treated for that month as if the person earns 20,000 pounds every month. Most of it falls outside the slim monthly basic-rate slice, so chunks are taxed at 40 percent and at 45 percent, even though the person's actual annual income is nothing like that.
The first 25 percent of a pension pot can normally be taken as a tax-free lump sum, subject to the lump sum allowance. It is only the taxable element (the remaining 75 percent of an UFPLS, or the income portion of a flexi-access drawdown payment) that is exposed to the emergency code. The tax-free portion is paid gross.
Who is affected and how big the overpayment can be
The overcharge typically hits people who are aged 55 or over (rising to 57 from April 2028), have a defined contribution pension, and take a one-off taxable amount from it. It applies whether the pot is being fully cleared, partially drawn, or used to start income drawdown. It does not apply to defined benefit (final salary) pensions paid as a regular monthly income, because HMRC issues a normal cumulative code for those.
The size of the overpayment depends on the size of the withdrawal and the rest of the saver's income. A pensioner with no other income who takes 15,000 pounds taxable in a single payment can be charged several thousand pounds where the actual liability is far smaller, and in some cases nothing at all. Quarterly HMRC bulletins show average refunds running into the low thousands of pounds per claim.
Subsequent withdrawals usually come out under a proper tax code that HMRC has issued to the pension provider after the first payment, so the overcharge is largely a problem with the first withdrawal in any tax year from a new arrangement.
The three reclaim forms: P55, P53Z and P50Z
HMRC has built three short forms specifically for reclaiming overpaid tax on flexible pension payments. The right one depends on whether the pension pot has been fully emptied and whether the person has other taxable income.
Form P55
This is for someone who has taken a taxable amount from a pension pot but has not used all of it, and who is not taking a regular pension income from it. It is the most common claim form for partial withdrawals or one-off UFPLS payments.
Form P53Z
This applies where a pension pot has been fully withdrawn (cashed in completely) and the saver has other taxable income in the same tax year, such as a salary, self-employment profits, the State Pension or another pension already in payment.
Form P50Z
This applies where a pension pot has been fully withdrawn and the saver has no other taxable income in the same tax year. The form effectively asks HMRC to reconcile the tax position immediately rather than waiting for the year-end.
Each form can be completed online through the HMRC services account, by signing in with a Government Gateway ID, or printed and posted. The forms ask for an estimate of total taxable income for the year, details of the pension payment, and any tax already deducted (visible on the pension provider's payslip or P45 issued after the withdrawal).
How to claim, what to expect and timescales
The cleanest route is to make the claim shortly after the pension provider has paid the money and issued the tax deduction figures. Online claims through the HMRC personal tax account are normally processed within around 30 working days, although periods of high demand (such as the run-up to the end of the tax year) can extend that.
HMRC pays the refund directly into the bank account given on the form. If the claim form is not used, HMRC will still reconcile the tax position automatically once the tax year ends and a P800 or simple assessment may be issued, but that means waiting until after 5 April and into the following summer or autumn to receive the money. For someone who has been overcharged several thousand pounds, the cashflow difference is significant.
Where a person is registered for self assessment, the overpayment is dealt with through the tax return rather than through P55, P53Z or P50Z. The system reconciles the figure based on the actual income for the year, so the refund (or any further amount due) shows up in the self assessment calculation.
Avoiding or reducing the overpayment in the first place
It is not possible to opt out of the emergency code on a first withdrawal, because HMRC has no other code in place for that pension source. There are however steps that can soften the impact.
One is to take a small initial withdrawal first. A modest taxable payment triggers the emergency code on a small sum, prompts HMRC to issue a proper code to the provider, and means a larger withdrawal taken later in the same tax year is then taxed under the correct code. This works because the provider applies the issued code to subsequent payments.
Another is to plan withdrawals across tax years. A smaller withdrawal in one year and the balance after 6 April in the next can keep both within the basic-rate band and reduce the temporary overcharge each time. Anyone considering this should also keep in mind the money purchase annual allowance, which restricts future tax-relieved contributions to 10,000 pounds a year once flexible income has been taken.
Some providers offer a small "test" payment specifically to flush out the emergency code. Others do not. Members can ask their provider what is possible before requesting the main payment.
Disclaimer: This article is general information about how HMRC taxes flexible pension withdrawals and how overpayments can be reclaimed. It is not personal tax, financial or pension advice. Tax outcomes depend on individual circumstances including other income, the type of pension, the timing of withdrawals and current legislation. Anyone considering taking money from a pension should check current HMRC guidance, speak to their pension provider, and consider regulated financial advice or free guidance from Pension Wise.
Frequently asked questions
Why is so much tax taken from my first pension withdrawal?
HMRC tells the pension provider to use an emergency tax code on a Month 1 basis for a first flexible payment, because no up-to-date tax code is held for that pension source. The code treats the single withdrawal as if it will be repeated every month, so much of it is pushed into the higher and additional rate bands even where the saver's actual income for the year is far lower.
How quickly will HMRC pay the refund?
Online claims using P55, P53Z or P50Z are normally processed within around 30 working days, with the refund paid into the bank account given on the form. Postal claims take longer. If no claim is made, HMRC reconciles the tax automatically after the end of the tax year, which can mean waiting several months for the same money.
Which form do I use if I have only taken part of my pension pot?
Form P55 covers a partial withdrawal where the pot has not been fully cleared and no regular pension income is being drawn from it. Forms P53Z and P50Z are used only when the pot has been fully withdrawn, with the choice between them depending on whether the saver has other taxable income in the same tax year.
Does this affect defined benefit (final salary) pensions?
The emergency code problem is a feature of one-off flexible payments from defined contribution pensions. A final salary pension paid as a regular monthly income is operated under a normal cumulative tax code issued by HMRC, so the same overcharge does not arise on the standard monthly payments.
Do I have to claim, or will HMRC sort it out automatically?
HMRC will reconcile the position automatically after the end of the tax year and issue a P800 or simple assessment if a refund is due. Submitting P55, P53Z or P50Z simply brings the refund forward, often by many months. People in self assessment have the position dealt with through their tax return rather than through these forms.
How we verified this
The mechanics of the emergency Month 1 code on flexible pension payments, the use of forms P55, P53Z and P50Z, and the routine reconciliation at the end of the tax year were checked against current HMRC guidance on GOV.UK and against HMRC's quarterly pension flexibility statistics, which publish the cumulative value of refunds since April 2015. The pension freedoms framework, the 25 percent tax-free element, the rise in the normal minimum pension age to 57 from April 2028 and the money purchase annual allowance reflect current pensions tax legislation. Figures and processing timescales should be reconfirmed on GOV.UK before being relied on, as HMRC updates its guidance and statistics regularly.
Sources
- GOV.UK: Claim a tax refund when you have taken a pension flexibility payment
- HMRC pension schemes newsletters and quarterly flexibility statistics
- GOV.UK: Tax when you get a pension
- GOV.UK: How you can take your pension under pension freedoms
- MoneyHelper / Pension Wise: free government-backed pensions guidance
