Pension savers whose tax code ends in “M1” could be eligible for sizeable refunds after being placed on emergency tax, with average repayments worth thousands of pounds.
Industry data shows pension savers who have faced emergency tax on withdrawals are reclaiming an average of £3,539 from HMRC, with refunds still being processed in time for Christmas.
HMRC returned £48,560,205 to individuals between July and September after they were overcharged on pension withdrawals.
The issue typically affects those aged 55 and above who hold defined contribution schemes or personal pensions and who have taken money from their retirement savings.
The first quarter of any pension withdrawal is tax-free, but people who take larger one-off lump sums often incur emergency tax at higher rates than they owe. PensionBee said many savers placed on emergency tax codes subsequently overpay and are eligible to reclaim the additional tax.
Anyone aged over 55 with a defined contribution or personal pension can withdraw the first 25 per cent of their pot tax-free. The remainder of the withdrawal is then taxed under standard income tax rules.
However, when a large amount is taken as a first withdrawal, HMRC applies an emergency tax code which assumes the same amount will be taken every month and therefore overestimates the individual’s annual income.
Savers can identify whether they have been affected by checking if their tax code ends in “M1”, which stands for “Month 1” and indicates tax is being applied on an emergency basis.
Pension savers with an ‘M1’ tax code may reclaim thousands after emergency tax deductions
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Tax codes can be viewed on the HMRC app, through an online personal tax account, on the HMRC website, on Tax Code Notice letters or on payslips for those who continue to work.
Experts say withdrawing smaller sums rather than large lump sums can reduce the risk of triggering an emergency code.
Reclaiming overpaid tax requires completing one of three Government forms depending on how the pension has been accessed.
Individuals who have fully withdrawn their pension through flexible access and who are still working or receiving benefits should complete form P53Z.
Those who have emptied their pension but who are not working or receiving benefits should use form P50Z.
Savers who have only taken part of their pension flexibly should submit form P55.
HMRC usually processes repayment claims within 30 days
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GETTYTax codes can be checked through an online personal tax account, on payslips or through the HMRC app.
Concerns can be raised directly with HMRC by calling 0300 200 3300.
Royal London pension expert Clare Moffat said: “Not only do these taxes usually come as a massive shock, the unexpected tax amount can also scupper people’s carefully laid plans”.
Royal London figures show some pension savers reclaimed more than £100,000 in emergency tax during 2023/24.
HMRC introduced changes in April intended to replace emergency tax codes with standard codes more quickly to limit overcharging.
Government figures show reclaim activity has increased.
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PexelsThe Government said savers do not need to take any additional steps because the tax authority would make these adjustments automatically.
Despite the changes, Government figures show reclaim activity has increased.
Between July and September 2025, 13,500 reclaim forms were submitted, up from 12,331 during the same period in 2024, representing an 11 per cent rise.
Total repayments increased from £44million to more than £48.5million year-on-year.
A HMRC spokesperson said: “Ultimately, nobody overpays tax as a result of taking advantage of pension flexibility.
“We will repay anyone who pays too much because they’re on an emergency tax code and individuals can claim a repayment much earlier if they wish.”