NI contribution error puts pensions at risk

Posted on January 28th, 2011 | Categories - Pensions

Tax mistakes could mean that the pensions of some British workers are docked.

National Insurance shortfalls suggest that many employees may not have made enough payments for a comprehensive pension pot when they retire from their job.

Millions of workers may not receive their full pension provision when they retire due to a National Insurance contribution error made by HMRC.

Over 9.3 million NI payments were not matched correctly with employee records between 2004 and 2009, which means that some workers may fall short of the 30 year contribution requirement needed to attain a full pension.

Employers complete P14 forms and send them through to the HMRC annually to ensure that worker NI payments are accounted for. HMRC staff check the details including names and addresses, which are then entered into a computer system. However, some information on the 48 million forms received every year can get entered wrongly and lead to discrepancies.

Those affected by the mistakes have to provide proof of payment using employer records. However, many records could have been destroyed or lost over the years.

Mike Warburton, of accountants Grant Thornton, said: “These people could have a great big gaping hole in their state pension without even knowing about it. It could prove catastrophic for these individuals. It’s likely they will find out about it several years down the line when they may have no way of proving they worked in that year”.

Conservative MP Ian Liddell-Grainger, chairman of the All Party Parliamentary Group on Taxation who revealed the figures, said: “We simply do not know how serious this problem is – it could date back many years. HMRC have to act now to ensure that these records are matched up as soon as possible. “There are people who could hit 65 years old before they realise they have a problem. It may be too late for them to act. Everyone’s right to a basic state pension depends on paying National Insurance contributions”.