Beware of the emergency tax code when withdrawing from your pension

Are you planning on withdrawing cash from your pension? If so, be warned! Following the recent pension reforms, over 55s are being advised to be aware of emergency tax codes when withdrawing cash from their pension pots.
The new pension rules state that over 55s can withdraw 25% of their pension pot tax-free, leaving the remainder liable to income tax.

If you have not withdrawn money from your pension before, your pension provider will not have received an up-to-date PAYE tax code to refer to, which means they have to follow HMRC rules and apply what's called the 'emergency tax code'. This code assumes that the initial lump sum taken will be the first in a number of regular monthly payments, consequently pushing receivers into higher tax bands when calculating their income over an annual period.

Under the 'small pots' rule, if you are planning to withdraw a lump sum from a pension worth just £10,000 in total, the emergency tax code will not apply. You will receive 25% tax-free and the rest taxed at 20%.

How to claim for a tax repayment

Individuals who have been taxed using the emergency code will be able to claim this overpayment back. However, HM Revenue & Customs is expected to have to deal with unprecedented demand following the changes, so a number of people could be facing long delays to receive their refunds.

To help speed up this process, HMRC are in the process of updating its systems and putting in new processes to pay overpaid tax back quicker.

If you would like to claim a tax refund, head to to fill in the relevant forms - P50 form if your only other source of income is the State Pension, or form P53 if you have other sources of income.

If you are looking to take advantage of the new pension reforms, contact Retirement and Investment Solutions on 01489 878300 or email This email address is being protected from spambots. You need JavaScript enabled to view it. .

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