By Paul Lewis
BBC Radio 4's Money Box
HM Revenue & Customs has admitted sending out the wrong tax codes to thousands of pensioners.
Thousands of people over 60 are being given incorrect tax codes
HMRC is changing the way it taxes private pensions taken out before July 1988.
Instead of taking a flat rate 22% tax it is issuing tax codes which should deduct the correct amount automatically.
But many codes have ignored age, pension and family circumstances causing confusion and distress.
Verena from Bridport is 80. Her low income means she should pay no tax on her £40 a month private pension.
She told BBC Radio 4's Money Box programme her reaction when a letter arrived.
"It was frightening to think I had to pay tax on the little bit of money I get," she said. "I couldn't see why and I couldn't understand the letters."
So she rang the dedicated Revenue helpline.
"I rang Wednesday, Thursday, and Friday and it was engaged.
"I rang again Monday morning and heard a voice telling me 'this phone will not be answered until the sixth of April'. Why give you a helpline if you can't get the help?"
Paddy Millard of the charity Tax Help for Older People (TOP) said he has taken calls from thousands of people with similar stories.
"People who haven't heard anything from the Revenue for 10 or 15 years because they were not paying tax or just paying it correctly at the basic rate are now receiving a coding notice with incomprehensible information and it has understandably scared them," he told the programme.
In most cases they should not have to pay tax and the coding notice probably indicates that.
But for people who are not used to dealing with such documents they are hard to understand.
Other people with larger incomes are finding that the coding does not take account of the higher tax allowance they should get because of their age, or is omitting information about their state pension.
The Revenue admitted it is issuing emergency tax codes to some of the 950,000 pensioners whose pension is being taxed through a code for the first time.
But it said that does not necessarily mean they will pay more tax.
In a statement it said: "Where we are waiting for further information we issued a provisional code. Provisional codes are not incorrect and unless we had information confirming that the pensioner had other income, the provisional code will allow the first £100 per week of the annuity to be paid without tax being deducted."
But it did acknowledge the helpline was overloaded, adding that extra staff had been taken on.
Paddy Millard said the Revenue should act to put things right.
"This is a Revenue generated confusion," he said. "We would like them to grant an immediate amnesty for those who are underpaying and a very fast track repayment scheme for those who have overpaid as a result."
BBC Radio 4's Money Box was broadcast on Saturday, 10 March 2007 at 1204 GMT.
The programme will be repeated on Sunday, 11 March at 2102 GMT.