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Data errors could see 4 million paid wrong pension
Faulty record keeping threatens to undermine the introduction of the flat-rate state pension in April, say experts.
by William Robins on Feb 08, 2016 at 08:36
Four million people retiring from this April could be given erroneous state pension payments because of faulty data.
From this April the state pension will move to a flat-rate system, with some people receiving the full-flat rate and some people receiving a different amount based on their national insurance contribution (NIC) record. However, while employers’ and the taxman keep records of people’s NIC contributions, as many as one in five records does not match due to record keeping errors, according to the Telegraph.
The flat-rate pension will pay a minimum of around £155.645 a week. However, as many as one in three retirees will not receive the full flat rate as they will not have made sufficient NICs.
Individuals need at least 10 ‘qualifying years’ of NICs to qualify for any state pension, and 35 years to receive the full amount.
Many of those who will not receive the full flat-rate state pension will have contracted out of the state pension system, which means they opted out of extra benefits such as the state second state pension in exchange for being allowed to pay a reduced rate of national insurance. Data on a person’s contracting out record is therefore vital to determining their final entitlement under the flat-rate system.
However, this will be the first time errors in contracting-out records will have an effect on state pension payments. According to the paper, data on contracting-out has been collected manually since 1978 and in the some cases half of a pension scheme’s records do not match those of HM revenue & Customs. It said errors could give result in pensioners receiving £5 too much or too little per week.
Schemes have begun a ‘mass reconciliation’ process with HMRC to check their data match.Another problem is that since 2012 the government no longer required pension providers to collect data on contracting-out, which, the paper said, means that six million people who transferred into a personal pension have no records. The Royal Mail Pension Plan told MPs on the Work and Pensions committee that a ‘high’ proportion of the data it holds is different to HM Revenue & Customs’ data.
BT Pension Scheme also told the paper that it could not calculate the contracting out deductions of its 300,000 members ‘with any confidence.’ Alan Higham, founder of pensionschamp.com, said: ‘Calculating nearly 30 million people's state pension entitlement by April 2016 is a major exercise with the potential for many errors to be made. The Department for Work and Pensions should share its plans to mitigate the risks and to explain how the pensions industry and savers themselves can help check the figures.’
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