HMRC is overhauling its pension tax system, which has overtaxed pensioners by £1.3 billion since 2015, by switching from ’emergency tax codes’ to regular ones starting in April 2025.
These codes have caused many savers to pay too much tax upfront, forcing them to claim refunds. Over 470,000 people have claimed back £1.37 billion, and nearly £50 million has been refunded in just the past three months.
The switch to regular tax codes guarantees that tax is taken out accurately from the beginning and prevents pensioners from having to request refunds later.
HMRC says this will “avoid an overpayment or underpayment at the end of the year” and reduce the need for end-of-year reconciliations or refund claims, particularly for those making multiple withdrawals.
Additionally, customers will automatically be informed of any changes, either by letter or digitally if they’ve chosen paperless communication.
LCP partner at pension consultants Steve Webb says: “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 which pension savers face when they try to access their hard-earned cash.”
