The Labour Government knew for at least a year that millions of pensioners may have been paying too much tax on their state pension, yet failed to alert those affected or resolve the issue, according to reporting by The Telegraph.
The error, which could have affected up to 8.7 million state pensioners who pay income tax, is believed to have resulted in some retirees being overcharged by an average of around £5 each. While the individual sums involved may appear modest, the total amount collected could have reached as much as £43.5 million in a single year.
The issue centres on the way HM Revenue and Customs calculates the taxable amount of the State Pension.
According to HMRC’s own guidance, pension income should be calculated using one week at the previous year’s pension rate and 51 weeks at the current year’s rate, reflecting the timing of annual pension increases.
However, The Telegraph reported that HMRC instead used figures that effectively treated pensioners as receiving 52 weeks at the higher rate, resulting in larger taxable incomes and potentially higher tax bills.
The problem was first highlighted publicly by Mike Warburton, tax columnist for The Telegraph, who said the discrepancy appeared to stem from information supplied by the Department for Work and Pensions.
Mr Warburton said: “We have two government departments at odds with each other and potentially the whole pensioner population being overcharged.
“They’ve taxed pensioners more than they say the law requires, so it’s to the taxpayer’s disadvantage. I think HMRC has got itself into a big hole.”
The controversy has intensified after Pensions Minister Torsten Bell admitted in correspondence with a pensioner that the Government had been aware of the issue since at least June 2025.
In a letter seen by The Telegraph, Mr Bell wrote: “We have become aware that for a small sub-set of customers in receipt of the state pension, [there has been] a calculation error.”
Despite that acknowledgement, pensioners were not formally informed and incorrect figures reportedly continued to appear on pre-populated tax returns as recently as May this year.
One pensioner, who previously worked for HMRC and first spotted the discrepancy on their spouse’s tax return, told The Telegraph that the problem appeared to have existed since the 2023-24 tax year.
They said: “We have corrected the pre-populated amounts each year, but it’s unsettling to reduce a pre-populated amount and then justify why you are doing that year on year.”
Tax experts have questioned why the issue was not addressed more quickly.
Robert Salter, of tax advisory firm Blick Rothenberg, said most people would assume figures supplied directly by HMRC were accurate.
“You’re going to assume it’s correct. Let’s be honest, almost nobody is going to double check that,” he said.
“The bigger issue is that especially for people on relatively low incomes, this tax matters. It’s money you could have spent that HMRC haven’t legally got the right to have.”
The revelations are likely to raise fresh questions about the Government’s treatment of pensioners, particularly given Labour’s controversial decision to restrict Winter Fuel Payments shortly after entering office.
Critics are likely to ask why ministers failed to notify affected retirees once the problem became known, especially when many pensioners are already struggling with rising household costs.
Last September, responding to a parliamentary question on the matter, Dan Tomlinson said that “most pensioners pay the right amount of tax in real time” and noted that affected individuals could contact HMRC to amend incorrect figures.
HMRC has apologised for the error and says it is working to correct the problem.
A spokesman said: “We apologise to those affected by this error and are working at pace to fix the issue, although the impact is small with the difference in tax owed being around £5 in most cases.”
Official sources told The Telegraph that HMRC expects to implement a fix later this summer.
However, questions remain over exactly when the error first began, how many pensioners were affected, and why ministers allowed the problem to continue for so long after becoming aware of it.
With reporting based on information first revealed by The Telegraph. Worth reading in full here.
Have you been overtaxed on your state pension? The Telegraph are asking you to get in touch at money@telegraph.co.uk.
