A flaw in HMRC’s online state pension forecasting system has potentially misled as many as 800,000 workers about their retirement income, with the error remaining unresolved for nearly a decade.
Government officials first became aware of the issue in 2017, yet it took a further four years before any corrections were implemented.
The digital tool, introduced in February 2016 to help people determine whether they were on track for maximum pension payments, has been providing overly optimistic projections to those who were previously “contracted out” of additional state pension contributions.
By 2019, approximately 360,000 inaccurate forecasts had already been distributed during the tool’s initial three years of operation.
Whilst the problem has been addressed for individuals reaching pension age before April 2029, HMRC acknowledges that those retiring afterwards may still receive incorrect information.
The technical issue stems from the system’s inability to process manual adjustments applied to records of employees who had chosen the “contracted out” option.
This now-abolished arrangement permitted millions of workers contributing to workplace or private pension schemes to forgo payments into the additional state pension, known as Serps.
Upon retirement, an individual’s final state pension is reduced to account for any periods during which they were contracted out.
Because the online tool failed to reflect these deductions, hundreds of thousands of users were erroneously informed they had accumulated sufficient National Insurance contributions to secure the full pension amount.
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To qualify for the maximum new state pension, workers must have 35 complete years of qualifying contributions, currently worth £230.25 weekly.
Those affected by the error have the option to fill gaps in their National Insurance record through lump sum payments of up to £907 for each missing year, with contributions potentially stretching back to 2006 rather than the usual six-year limit.
However, Sir Steve Webb, who served as pensions minister under the Liberal Democrats and now works as a partner at consultants LCP, cautioned that this remedy is beyond the reach of many.
“When people request a state pension forecast to use as the basis for their retirement planning, they should be in a position to be confident that the information they have received is accurate. But in too many cases, it seems that this was not so,” he said.
Those affected by the error have the option to fill gaps in their National Insurance record
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GETTYSir Steve added that whilst voluntary contributions can sometimes rectify the situation, “not everyone will be able to afford to do this,” leaving people with retirement plans “built on foundations of sand.”
The tax authority has issued an apology to those whose forecasts omitted contracted out deductions, though it maintains that no one’s actual pension calculation has been affected.
HMRC confirmed it does not know precisely how many individuals remain impacted but stated it would permit those who received misleading information to make voluntary top-up payments from the date of their incorrect forecast, with compensation considered “where appropriate.”
Pensions expert Tom McPhail described the prolonged delay as impossible to justify
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GETTYPensions expert Tom McPhail described the prolonged delay as impossible to justify.
“Forecasting and planning your retirement income is absolutely critical for most people.
“If the state is providing misleading information, then it’s impossible to make an accurate plan,” he told the Telegraph, adding: “There’s no justification or excuse for not having fixed the problem yet.”