HMRC is set to refund over 3 million state pensioners after a systematic error in its tax calculations. The tax authority used incorrect annual State Pension figures, leading to overcharging on income tax for millions of retirees. The repayments total £19.3 million, equating to around £6 per person on average, although the exact amount will vary depending on individual circumstances.
Systematic Error in State Pension Calculations
HMRC's computer systems mistakenly applied the higher rate of the State Pension to 52 weeks of the year, rather than recognising that the first week of the new tax year is paid at the previous year’s lower rate. This overstated the annual pension income recorded on its systems and, as a result, led to slightly higher income tax bills than individuals should have paid.
The error affected 3.2 million retirees, who will now receive repayments. The repayments, which are expected to be made during the 2026/27 financial year, will be processed through PAYE tax code adjustments, credits to Self Assessment tax accounts, or other methods where necessary.
HMRC Apology and Next Steps
HMRC’s chief executive John-Paul Marks apologised for the mistake, saying: "If customers believe they were affected in earlier years and have the necessary evidence, they can ask HMRC to review their position. These requests will be considered on a case-by-case basis. I am sorry that this error occurred and recognise the impact on affected customers."
Affected pensioners do not need to take immediate action, as HMRC will automatically issue refunds for the affected period. However, those who believe they were overcharged in earlier years are encouraged to contact HMRC with evidence for a case-by-case review.
Reaction from Former Pensions Minister
Steve Webb, former Liberal Democrats and Conservative Party coalition government pensions minister and partner at LCP, criticised the error, saying: "It is hard enough for citizens to understand the tax system, but in this case it looks as though HMRC didn’t know its own rules."
He added: "The trouble is, HMRC was pre-filling in people’s tax returns with the wrong figure, resulting in a small excess tax payment. If proper checks were done when these systems were set up, these errors would be spotted. Instead there will have to be a huge bureaucracy to refund a few pounds each to millions of pensioners."
The repayments will be made automatically for most affected individuals, with any necessary adjustments applied through the standard tax system during the 2026/27 financial year.
