HM Revenue & Customs (HMRC) is preparing to refund more than 3 million state pensioners after discovering an error in tax calculations. The mistake arose from the use of incorrect annual State Pension figures, resulting in overtaxation of retirees.
Approximately 3.2 million pensioners were affected by this systematic error, with total repayments amounting to around £19.3 million. On average, each individual is expected to receive about £6, although the exact amounts will vary depending on each pensioner’s circumstances.
The refunds are planned to be issued during the 2026/27 financial year. HMRC will process repayments through adjustments to PAYE tax codes, credits to Self Assessment tax accounts, or other appropriate methods as necessary.
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John-Paul Marks, Chief Executive of HMRC, commented: “If customers believe they were affected in earlier years and can provide the necessary evidence, they can request a review of their case. Each request will be considered individually. I sincerely apologise for the error and recognise the impact it has had on those affected.”
The issue stemmed from HMRC’s computer systems applying the higher State Pension rate for all 52 weeks of the year, overlooking the fact that the first week of the new tax year is actually paid at the previous year’s lower rate. This led to an overstatement of annual pension income in HMRC’s records, resulting in slightly higher income tax charges than pensioners should have paid.
Steve Webb, former pensions minister and current partner at consultancy LCP, criticised the oversight: “Tax rules are complex enough without HMRC misapplying its own policies. The mistake led to pre-populated tax returns showing inflated figures, causing small overpayments. If adequate checks had been in place when these systems were developed, such errors would have been identified earlier. Unfortunately, this will now require a large administrative effort to reimburse relatively small amounts individually to millions of pensioners.”