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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

Data errors could see 4 million paid wrong pension

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.’

4 comments so far. Why not have your say?

michael coxson

Feb 08, 2016 at 11:07

Bunch of clowns NO records ????? on purpose maybe ???????????

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Mike Rose

Feb 08, 2016 at 18:07

Its a pity that those of us who are already pensioners and who have the full contribution requirement are being unfairly treated here by not also being entitled to the larger state pension.

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eddie cairns

Feb 08, 2016 at 18:16

"However, this will be the first time errors in contracting-out records will have an effect on state pension payments"

Nonsence, since 1975 when Serps was introduced and for people retiring since then and up to the 5th April 2015 when all these peoples pensions have been calculated, thats for the past 40 years these contracted out years are used to calculate the reduction in second state pension and Serps.

The way it is done is

1 The basic state pension is calculated from the persons NI record which may included years they have been credited NI contributions.

2 Anyone earning over £6,000 at todays rate and smaller amounts in the past, the Lower Earnings Limit have their SERPS or SSP calculated based on earnings at this point it is assumed all people are contracted in.

3 Those years contracted out are then checked and a reduction in the SERPS and SSP already clac'd in 2 above is made for those years contracted out. The calulation is quite complex and I believe about 1992 but I may be wrong in the exact year. no records were kept for a few years re contracting out.

So William Robins it is not very much out of 10 for this effort. You must check every fact before you publish.

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dd

Feb 08, 2016 at 18:22

It seems that there are also many others who will not get the full flat rate pension, Mike, especially if they contracted out, and even if they completed 35 years with full NICs in addition to the contracting out stage. What amazes me is this bit:

"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."

Is this a consequence of making laws retroactive, without thinking through the mechanics and the existing legislation?

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