Last Updated On – 18-09-2026

HMRC has confirmed a historical error in the State Pension figures used in some Income Tax calculations, resulting in millions of pensioners having their tax position calculated using an incorrect pension amount.

The position is now much clearer than when the issue first emerged. In its latest update, dated 3 September 2026, HMRC said it expects approximately 3.2 million customers to receive repayments totalling around £19.3 million.

The department plans to correct affected tax positions from 2020/21 onwards without requiring pensioners to make a claim.

HMRC has also made a system change intended to prevent the same State Pension calculation error from recurring. The change for future PAYE and Simple Assessment reconciliations was implemented on 25 August 2026.

Pensioners should therefore be careful with earlier reports suggesting that everyone whose records contained an incorrect figure had necessarily paid too much tax.

HMRC has explained that some discrepancies were small enough to fall within its administrative tolerances, meaning an incorrect underlying State Pension figure did not always result in the wrong amount of tax actually being collected.

What Is the HMRC Pensioners Income Tax Overcharge?

The HMRC pensioners Income Tax overcharge concerns the amount of taxable State Pension that HMRC used when working out certain pensioners’ tax liabilities.

The problem did not mean pensioners were receiving the wrong State Pension from the Department for Work and Pensions. Instead, HMRC was using an incorrect State Pension figure inside parts of the tax system.

The error affected three important areas:

Tax Process	How the Error Could Appear
PAYE	Incorrect State Pension figure used in end-of-year reconciliation
Self Assessment	Incorrect State Pension amount pre-populated in some online returns
Simple Assessment	Incorrect pension amount included when calculating tax due

This distinction matters. The State Pension payment itself was not being reduced by the error. The problem concerned the taxable income figure used by HMRC.

How Did HMRC Calculate Some State Pension Income Incorrectly?

The error arose from the way annual State Pension increases were incorporated into HMRC’s systems.

State Pension is taxable income, but unlike many workplace and private pensions, Income Tax is not normally deducted directly before the State Pension reaches the recipient.

HMRC therefore has to include the pensioner’s State Pension entitlement when calculating their total taxable income.

For the pensioners concerned, the system effectively treated the annual State Pension amount as 52 weeks at the newly uprated weekly rate.

However, the taxable amount should generally have reflected:

• One week at the previous State Pension rate
• 51 weeks at the new State Pension rate

The result was that the State Pension figure used for tax purposes could be slightly higher than the correct amount.

Example Using the 2025/26 Full New State Pension

The full new State Pension increased from £221.20 per week to £230.25 per week in 2025/26.

Using 52 weeks entirely at the higher rate would produce:

£230.25 × 52 = £11,973

Using one week at £221.20 and 51 weeks at £230.25 produces:

£221.20 + (£230.25 × 51) = £11,963.95

That is a difference of:

£9.05

For a basic-rate taxpayer paying 20% tax, a £9.05 overstatement could equate to approximately £1.81 of extra Income Tax, assuming the entire difference affected the tax calculation.

The sums can therefore be small for an individual pensioner, but the impact becomes substantial when similar discrepancies are applied across millions of tax records.

Anyone comparing pension amounts can also check how the State Pension increased in 2026/27, including the current full weekly rates.

How Many Pensioners Were Actually Overcharged by HMRC?

This is where the latest information is particularly important.

Earlier reports suggested that up to 8.7 million pensioners could potentially have been affected, with figures of up to £43.5 million being discussed.

Those figures should not now be treated as the number of people definitely owed a refund.

HMRC subsequently carried out more detailed work and, in its September 2026 update, gave a much more specific estimate.

HMRC’s Latest Position

Latest HMRC Update	Position
Customers expected to receive repayments	Approximately 3.2 million
Estimated total repayments	Around £19.3 million
Automatic historical correction period	2020/21 onwards
PAYE and Simple Assessment system fix	25 August 2026
Most repayments expected	During 2026/27
Earlier years	Review available case by case with evidence

Therefore, saying that 8.7 million pensioners were definitely overcharged would be misleading.

The more accurate current position is that the error potentially appeared across a much wider population, while HMRC now estimates that around 3.2 million customers will actually receive repayments under its corrective exercise.

Why Doesn’t Every Incorrect State Pension Figure Result in a Refund?

An error in the figure used by HMRC does not necessarily mean the pensioner paid the wrong amount of tax.

HMRC applies administrative tolerances to small PAYE underpayments and overpayments.

For example, there could be a small discrepancy in the taxable State Pension figure but no resulting repayment if the final difference falls within the relevant tolerance or does not alter the pensioner’s actual tax liability.

Other pensioners may not have paid Income Tax at all because their total taxable income remained below their available Personal Allowance.

Several factors therefore need to be separated:

1. Was the State Pension figure incorrect?
2. Did that incorrect figure change the final tax calculation?
3. Was extra tax actually collected?
4. Is the resulting amount one that HMRC will repay?

This explains why figures for the number of tax records potentially affected can be considerably higher than the number of people eventually receiving money.

Who Is Most Likely to Have Been Affected?

The issue is particularly relevant to pensioners whose State Pension was included alongside another taxable income source.

That can include people receiving:

• A workplace pension
• A defined benefit pension
• A personal pension
• An annuity
• Employment earnings
• Self-employment income
• Savings interest
• Rental income
• Other taxable retirement income

A pensioner receiving only a relatively modest State Pension may have had no Income Tax liability at all.

A pensioner receiving the State Pension plus a private pension, however, could have tax collected from the private pension through PAYE.

Why Private Pension Tax Codes Matter?

State Pension is generally paid without Income Tax being deducted directly from each payment.

Where tax is due and the pensioner receives another PAYE income, HMRC can adjust the tax code applied to that income.

That means the tax associated with State Pension may effectively be collected through a workplace or private pension.

Pensioners who are unsure why the allowance attached to another pension has changed can check the factors that cause an HMRC tax code to change.

Has HMRC Now Fixed the Pension Tax Error?

HMRC says it has taken action both to stop the problem recurring and to correct earlier tax years.

On 25 August 2026, HMRC implemented the system change required so future annual PAYE and Simple Assessment reconciliations use the correct State Pension figures.

These groups represent the substantial majority of affected customers.

There is also separate corrective work for Self Assessment.

PAYE and Simple Assessment

Future annual reconciliations should now use the corrected State Pension calculation.

HMRC is also reviewing earlier affected cases and intends to issue repayments where appropriate.

Self Assessment

HMRC said in early September that it expected to correct State Pension figures pre-populated into 2025/26 Self Assessment returns that had not yet been submitted during September 2026.

For people who had already submitted their 2025/26 return using an affected figure, HMRC said it would correct their position afterwards.

This is significant because taxpayers should not assume that a pre-populated tax return figure was necessarily correct simply because HMRC supplied it.

Will Pensioners Have to Claim the HMRC Tax Refund?

For the main remediation programme, no claim should be required.

HMRC has said it will identify affected customers and correct their tax positions automatically for tax years beginning with 2020/21.

The corrections can be delivered in several ways depending on the person’s tax affairs.

Tax Position	How a Repayment Could Be Made
PAYE	Tax coding adjustment
Self Assessment	Credit to the Self Assessment account
Other cases	Alternative repayment such as a payable order

HMRC expects the majority of corrections and repayments to be completed during the 2026/27 financial year.

Pensioners should therefore be cautious about companies or unsolicited messages claiming that a fee must be paid to access an automatic HMRC pension tax refund.

What Should a Pensioner Do Now?

The latest HMRC position means there is no need for everyone potentially affected from 2020/21 onwards to immediately submit an individual refund claim.

However, checking existing records remains sensible.

Check the State Pension Figure

The pensioner can compare the State Pension amount shown on relevant tax records with the amount to which they were entitled for that year.

Useful records may include:

• DWP State Pension letters
• P800 calculations
• PAYE coding notices
• Self Assessment tax returns
• Simple Assessment calculations
• Private pension statements
• HMRC tax account information

Check Whether the Tax Code Changed

Someone with both State Pension and another PAYE pension should check whether HMRC reduced the Personal Allowance applied to the other pension.

A change is not automatically an error. It may simply be how HMRC collects tax due on untaxed State Pension income.

The important question is whether the State Pension amount used to calculate that adjustment was correct.

Check Any Repayment Carefully

A pensioner receiving an HMRC correction should check:

• Which tax year it relates to
• The State Pension figure used
• The amount of the tax adjustment
• Whether it is being refunded directly or through a tax code
• Whether another tax liability has affected the final amount

A repayment may therefore not necessarily appear as a standalone cash transfer into the pensioner’s bank account.

What If the Pensioner Was Affected Before 2020/21?

HMRC’s proactive correction exercise starts with the 2020/21 tax year.

HMRC has explained that this is the maximum period for which its available data allows affected cases to be identified and corrected reliably and efficiently through the central exercise.

That does not necessarily close the door on earlier years.

A person who believes they were affected before 2020/21 can ask HMRC to review the position, but the case will be considered individually.

Evidence could become particularly important in these cases.

Records worth retaining include:

• Original State Pension award letters
• Annual pension increase notifications
• Old tax coding notices
• P800 calculations
• Self Assessment returns
• Simple Assessment notices
• HMRC correspondence
• Pension payment records

Older cases may be more complicated because the pensioner and HMRC both need sufficient information to reconstruct what happened.

When Will HMRC Pensioners Receive Their Tax Repayments?

There is no single repayment date applying to all 3.2 million customers.

HMRC said in September 2026 that it expects the majority of corrections and repayments to be completed during the 2026/27 financial year.

The timing can depend on how the person’s Income Tax was administered.

For example, one pensioner may receive a correction through PAYE coding, while another may receive a credit to a Self Assessment account.

Pensioners should therefore not assume that another person’s repayment date will apply to them.

Is the State Pension Taxable?

Yes. The State Pension counts as taxable income.

However, receiving a State Pension does not automatically mean Income Tax is payable.

Income Tax depends on the pensioner’s total taxable income and available tax-free allowances.

For example, taxable income can include:

Income Source	Normally Relevant to Income Tax?
State Pension	Yes
Workplace pension	Yes
Personal pension income	Usually
Employment income	Yes
Taxable savings interest	Yes
Rental profit	Yes
Certain taxable benefits	Yes

The standard Personal Allowance remains important because income below the applicable allowance may not generate an Income Tax bill.

The full new State Pension is £241.30 per week in 2026/27, but not every pensioner receives the full amount. Entitlement depends on the individual’s National Insurance record and other State Pension rules.

Does HMRC Take Tax Directly From the State Pension?

Normally, State Pension is paid without Income Tax being deducted directly from it.

Where the pensioner also has a private pension, occupational pension or employment income, HMRC can collect the tax through the PAYE code applied to that other income.

If that is not possible, HMRC may use another process such as Simple Assessment.

This arrangement helps explain why the calculation error was difficult for some pensioners to spot. A person could receive the expected State Pension into their bank account while slightly too much Income Tax was being collected somewhere else.

Why Did the HMRC Error Go Unnoticed for So Long?

HMRC has described the problem as a historical error associated with State Pension figures used in its tax systems.

The underlying PAYE problem dates back to a system change introduced in 2010.

The issue later spread into other tax processes as information was reused:

• PAYE end-of-year reconciliations were affected from the earlier period.
• State Pension figures subsequently fed into Self Assessment pre-population.
• Simple Assessment calculations were also affected.

Because the difference for an individual pensioner could be very small, it was not necessarily obvious from a tax bill or pension payment.

A discrepancy of only a few pounds in tax can easily be overlooked, particularly where a pensioner has several sources of retirement income and multiple annual tax documents.

What Has HMRC Said About the Error?

HMRC Chief Executive and First Permanent Secretary John-Paul Marks formally acknowledged the mistake and apologised to affected customers.

In the September update to the Treasury Committee, he confirmed that HMRC was taking two main forms of action:

• Fixing the system going forward, so the same error should not recur.
• Correcting historical tax positions, including proactively identifying customers owed repayments.

HMRC is also conducting an Internal Audit review intended to identify how the error occurred and what lessons should be applied to future systems.

The practical importance for pensioners is that the position has now moved beyond merely investigating whether a problem existed. HMRC has confirmed both the technical fix and a programme of historical repayments.

HMRC Pension Tax Error: Earlier Reports vs Latest Position

The changing figures surrounding this issue can cause confusion, so the distinction is important.

Issue	Earlier Coverage	Latest HMRC Position
Scale discussed	Up to 8.7 million potentially affected	Around 3.2 million expected to receive repayments
Potential amount	Figures as high as £43.5 million reported	Around £19.3 million in estimated repayments
Status of error	Under investigation/awaiting fix	Confirmed and system correction implemented
Claim required	Initially uncertain	No claim required for proactive 2020/21-onwards correction
Future PAYE/Simple Assessment	Fix expected	Change implemented 25 August 2026
Historical period automatically reviewed	Unclear	2020/21 onwards
Earlier tax years	Unclear	Case-by-case review possible with evidence

This is why older coverage should not simply be repeated without the September update.

What Does the HMRC Pensioners Income Tax Overcharge Mean Going Forward?

The HMRC pensioners Income Tax overcharge is no longer simply a reported calculation problem. HMRC has acknowledged the historical error, implemented a technical correction and set out how affected customers will be repaid.

The most important current figure is approximately 3.2 million customers, who HMRC estimates will receive around £19.3 million in repayments as part of its retrospective correction work.

Affected cases from 2020/21 onwards are due to be identified automatically, meaning pensioners within that exercise should not have to make a separate claim.

People who believe they were overcharged in an earlier year may still ask HMRC to consider their case, although supporting records will be important.

The episode also shows why State Pension taxation can be difficult to follow. The State Pension may arrive without tax deducted while the tax itself is collected through another pension, a PAYE code, Self Assessment or Simple Assessment.

Checking the State Pension figure used by HMRC remains worthwhile even now that the underlying system problem has been addressed.

FAQs

Did HMRC overcharge pensioners on their State Pension?

HMRC confirmed that an incorrect taxable State Pension figure was used in some PAYE, Self Assessment and Simple Assessment calculations. The State Pension itself was not reduced incorrectly; the problem affected the Income Tax calculation.

How many pensioners will receive HMRC refunds?

HMRC’s September 2026 estimate is that approximately 3.2 million customers will receive tax repayments.

How much will HMRC refund?

HMRC estimates total repayments of around £19.3 million. The amount received by an individual will depend on the tax years affected and their particular tax position.

Does every pensioner get an HMRC refund?

No. Not every State Pension recipient was affected, and an incorrect underlying pension figure did not necessarily result in too much tax being collected.

Does a pensioner need to claim the refund?

HMRC says it will proactively identify and correct affected cases from 2020/21 onwards, so those customers should not have to submit their own claim.

When will repayments be made?

HMRC expects to complete the majority of corrections and repayments during the 2026/27 financial year.

Has HMRC fixed the State Pension tax calculation?

HMRC implemented the required change for future PAYE and Simple Assessment annual reconciliations on 25 August 2026. Work has also been taking place to correct affected 2025/26 Self Assessment figures.

What happens if the error occurred before 2020/21?

A person who believes they were affected before 2020/21 can ask HMRC to review the case. HMRC says these older claims will be considered individually where the necessary evidence is available.

Is State Pension taxable income?

Yes. State Pension is taxable, although a pensioner will only have Income Tax to pay if their overall taxable position creates a liability after the allowances available to them are considered.

Can HMRC collect State Pension tax from a private pension?

Yes. Because tax is not normally deducted directly from State Pension payments, HMRC can adjust the tax code used for another PAYE income source, such as a workplace or private pension, to collect tax that is due.