HMRC Apologises for State Pension Tax Error Affecting Up to 3.1 Million Pensioners

HM Revenue & Customs chief executive John-Paul Marks apologised to the Public Accounts Committee in a letter published on 1 July 2026 for a long-running error in how taxable state pension amounts feed into PAYE reconciliations, Self Assessment pre-population, and Simple Assessment calculations.

The issue may have affected up to 3.1 million pensioners in 2024-25 alone — approximately 1.4 million through PAYE, up to 955,000 through Self Assessment, and around 760,000 through Simple Assessment. HMRC is developing a fix for summer 2026 to correct future-year calculations.

Tax law requires state pension income to be taxed on amounts accruing during the tax year — not simply on cash received. HMRC's established practice calculates entitlement as one week at the previous year's rate plus 51 weeks at the current year's rate, reflecting the April pension uprating under the triple lock.

A PAYE systems modification implemented in 2010 incorrectly applied 52 weeks at the current year's higher rate instead. In effect, affected pensioners paid tax on the one-week difference between the old and new rates twice.

The incorrect figure flowed into Self Assessment pre-population from 2015-16 and Simple Assessment from 2016-17, meaning digital filing channels repeated the same error even where PAYE had not directly over-deducted.

HMRC estimates average annual overpayment since 2021-22 at £1.76 for the full basic state pension and £2.30 for the full new state pension at the basic rate — small per taxpayer but systemic across millions of records.

Internal estimates suggest approximately £18 million in excess tax collected since 2021. Many cases fall within HMRC's standard end-of-year reconciliation tolerances, meaning no automatic refund or tax code adjustment will issue for every affected pensioner.

Marks told the PAC that complexity between DWP pension data, PAYE reconciliation, Simple Assessment, and Self Assessment pre-population delayed a fix — the department is now prioritising a solution for 2025-26 calculations.

HMRC intends to deliver a fix this summer ensuring 2025-26 PAYE and Simple Assessment calculations use correct state pension amounts. The solution will also enable correction of 2025-26 Self Assessment returns already filed where pre-populated pension figures were wrong.

There is no blanket automatic refund programme for historical years. Pensioners who believe they overpaid should contact HMRC via online account, webchat, or post — or amend Self Assessment returns where still within the amendment window.

Tax agents should review pensioner clients with state pension income above the personal allowance, comparing DWP annual statements against HMRC pre-populated figures before filing 2025-26 returns.

Check 2024-25 and 2025-26 tax calculations for clients receiving state pension alongside employment or private pension income. Flag discrepancies between DWP notifications and HMRC records before the next payment on account deadline on 31 July 2026.

Document client contact with HMRC where refunds are pursued — given small average amounts, weigh administrative cost against recovery. For Self Assessment pensioners, amendment may be worthwhile where tolerances did not absorb the error.

FinnAccountings helps UK sole traders, landlords, and pensioners reconcile pre-populated SA data against bank and pension statements — start a free trial to catch income mismatches before submission.