HMRC has formally admitted overtaxing millions of state pensioners in an error dating back 15 years, after an investigation by Telegraph Money brought the issue to light. HMRC chief executive John-Paul Marks apologized in a letter to MPs, calling it a mistake that “matters, particularly to customers on fixed or limited incomes.”
What Went Wrong
The error traces back to a change made to HMRC’s PAYE system in 2010. Under HMRC’s own rules, a pensioner’s tax calculation should reflect 51 weeks at the current year’s state pension rate combined with just one week at the previous year’s lower rate, since the state pension rises each April under the triple lock — the guarantee that pensions increase by whichever is highest out of inflation, average earnings growth, or 2.5%. Instead, HMRC’s system applied the full 52 weeks at the higher, post-increase rate throughout the year, effectively taxing pensioners as if they’d received the new, higher rate for the entire 12 months rather than just 51 weeks of it.
Who’s Affected and By How Much
The scale is significant even if individual amounts are modest:
- Around 1.4 million pensioners were overtaxed through the PAYE system.
- Up to 955,000 more in Self Assessment and roughly 760,000 in Simple Assessment may also have been overcharged by the same error.
- In the 2024-25 tax year alone, HMRC collected more than £2 million in extra tax from those affected, with the average overpayment around £2 per person for that year — small individually, but the error has compounded since 2010-11, meaning long-term losses for some pensioners are considerably higher.
Why It Took So Long to Surface
Perhaps the most striking detail is the timeline: HMRC has reportedly been aware of the issue since at least 2019 but only acknowledged it publicly after media scrutiny this year. Marks attributed the delay to the technical complexity of reconciling data between the Department for Work and Pensions, PAYE end-of-year processes, and Self Assessment and Simple Assessment systems, saying a solution had taken this long to develop.
A tax commentator who helped bring the issue to public attention made the point that the amounts involved are small individually, but that isn’t really the point — the public should be able to trust what government services tell them without needing to independently verify the calculations themselves.
Will Pensioners Get Refunds Automatically?
Not automatically, as things stand — HMRC has not committed to issuing automatic repayments. Affected pensioners currently need to contact HMRC directly to have the error corrected and reclaim any overpaid tax. HMRC says it is developing a system fix intended to correct future calculations this summer.
What Pensioners Should Do Now
If you’ve received state pension income and paid tax on it via PAYE, Self Assessment, or Simple Assessment at any point since the 2010-11 tax year, it’s worth checking your tax records or contacting HMRC to confirm whether you were affected. Given HMRC hasn’t promised automatic refunds, the responsibility currently sits with individuals to flag the issue rather than wait for a correction to arrive unprompted.
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