Tax blunder could see pensioners out of pocket

Millions of people could lose out on their state pension contributions because of failures to credit nearly £1.3 billion of national insurance.

Mistakes by HM Revenue & Customs (HMRC) in matching contributions with individual records over the past five years, mean people may lose out getting the full basic state pension, currently £97.65 a week. A full pension is given only to those who have paid NI for at least 30 years.

Nearly 10 million payments have not been credited to NI accounts, but HMRC reassures that no one will have a reduced pension because of these mistakes.

However, Ian Liddell-Grainger, Conservative MP for Bridgewater who chairs the All Party Parliamentary Taxation Group, says the situation is terrifyingly serious and HMRC is "sitting on a NI time bomb".

Problems in the past

The problems arose between 2004 and 2009 when 9.3 million payments were not matched to employees' records. Each year employers send in a P14 form, which contains details of tax and NI paid.

HMRC matches these to individuals' accounts but sometimes problems arise if there is not enough information provided. In these cases the contributions are retained and returned to the individual if they can provide proof they have paid it.

This mistake follows errors last year where HMRC admitted to £6 billion in tax mistakes in its PAYE system, including an estimated £2 billion in underpayments.

HMRC will write to people with contribution gaps, ahead of their retirement, and if individuals have paid NI, which does not equate to their state pension entitlement, and can provide proof from an employer, the revenue will put this back into their NI pot.

Have you been affected? How can you find out?

Your P60 form, which your employer should issue at the end of every tax year, will have details of your contributions, check your NI number is correct, if so it's unlikely there will be a problem. If you're still worried you can always contact HMRC's helpline on 0845 302 1479.

What happens if there is a mistake?

If you notice a mistake, either on your P60 or previous pay slips, make sure you correct your NI number as soon as possible and keep a record of all previous pay slips. Therefore, if you have been unfortunate enough to suffer from a shortfall, you will be able to prove the amount of NI you've paid and receive a repayment.

But I haven't kept all my payslips. What can I do?

HMRC should be able to trace your old employer but issues will arise with employers who have either been taken over or folded. It's important to act soon if you think there's been a problem, instead of waiting until retirement age to discover a shortfall. As the mismatched records only date back to 2004, HMRC should be able to help you locate the appropriate tax records and more advice is available from their hotline.

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