Millions of pensioners have paid the wrong amount in taxes as HM Revenue & Customs has been unable to cope with the increased complexity of people’s tax affairs when they retire, a report showed last week.

The National Audit Office found that by March 2009, about 1.5m pensioners had overpaid an average £171 — a total £250m. Another 500,000 had underpaid by an average £207 — £100m.

The NAO said the taxman’s systems had struggled under the strain of calculating tax from multiple sources of income. “These errors can have a disproportionate effect on older people as their net average annual income of £16,000 was about 25% below the national average in 2006-7,” said the report. It is hoped a new computer system, introduced in June, will cut errors.

In addition, some 3.2m pensioners could be paying too much tax because they do not claim additional age-related tax allowances, the NAO said. Some might not claim because they do not have sufficient income to pay tax, while others do not realise they are entitled to the allowances. Claiming would lift the average pensioner’s income by up to 4%.

A further 2.4m pensioners have paid £200m too much tax because they did not have their savings income paid gross.