Around 1.5 million pensioners have overpaid a total of £250 million in tax since 2002-03, the National Audit Office has revealed.

On average older people paid £171 too much tax over the past seven years, after failing to claim age-related tax allowances and not receiving savings income paid gross.

Around 500,000 older people had underpaid tax by an average of £207 each - £100 million in total.

Errors occur because tax affairs often become more complicated when people reach pension age and HMRC’s systems do not cope well with their multiple sources of income, the NAO said.

It added that whilst HM Revenue & Customs (HMRC) spend around £36 million per year in staff costs on dealing with enquiries from pensioners, it could do more to help older taxpayers.

A spokesman for the NAO said: “HMRC should rethink its approach to ensure that older people get the financial support to which they are entitled.

“It should also work in a more joined-up way with other organisations to provide a more coherent service for older people on their tax affairs.”

Tax errors can have a disproportionate effect on older people as their net average annual income of £16,000 was around 25 per cent below the national average in 2006-07.

The NAO estimates that 3.2 million older people do not claim additional tax allowances - probably because they do not realise they are entitled to them. Claiming these allowances would boost the average income of an older person by up to 4 per cent.

Andrew Harrop of Age Concern and Help the Aged, the charity, said: “Unfortunately tax can become a lot more complicated when people retire and it is often the first time older people will have had any contact with the HMRC.

"It’s important HMRC starts addressing the problems older people face paying tax to start making the system easier for people to use."

For more information about paying tax, the charity has produced a free ‘Your tax healthcheck’ booklet which is available at www.ageconcern.org.uk or by calling 0800 00 99 66.