1.5m pensioners 'pay too much tax'

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Some 1.5 million older people over-paid income tax due to processing errors, while about 3.2 million were failing to take up their allowance entitlements, the watchdog found.

It also estimated that 2.4 million were paying more than they needed to on their savings because of their tax arrangements.

The overpayments ran into hundreds of pounds for many pensioners, who are particularly affected by losing the cash because of their relatively low incomes.

There were also 500,000 older people who had underpaid tax, by an average £207.

The NAO said errors occurred because the tax situation for pensioners was often more complicated than for the rest of the population and HM Revenue and Customs struggled to cope.

It said that the average income tax overpayment due to error was £171, having a disproportionate effect on a group whose mean income was just £16,000.

A spokesman for HM Revenue and Customs said: "We're very pleased that 80% of older people are satisfied with the service they receive from us but we are determined to reduce over and underpayments.

"During the last few months we have significantly upgraded our computer systems to improve accuracy and deliver a better service to older taxpayers.

"We will shortly launch a publicity campaign designed to encourage older taxpayers to reclaim tax and have their investment income paid tax-free.