The problem centres on HMRC’s online state pension forecast tool (Image: Getty)
Hundreds of thousands of workers could be heading for an unpleasant shock in retirement due to a long-running flaw in the Government’s own state pension calculator.
The problem centres on HMRC’s online state pension forecast tool – launched a decade ago to help people plan for retirement – which shows how much some people are on track to receive.
It now appears that up to 800,000 users may have been shown figures that were too generous, leaving some believing they were on course for the full state pension when they were not.
The issue was first flagged to ministers in 2017, yet fixes were not fully rolled out for another four years. By 2019, it had already emerged that around 360,000 incorrect forecasts had been issued in the first three years after launch.
Although the error has now been corrected for those reaching state pension age before April 2029, HMRC has conceded that people retiring after that date may still be affected – with some wrongly told they would receive the full amount and did not need to make extra National Insurance payments.
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To qualify for the full new state pension, workers need 35 qualifying years of National Insurance contributions. At today’s rates, that pays £230.25 a week.
The flaw affects workers who were once “contracted out” of the additional state pension – a now-abolished arrangement that allowed employees paying into workplace or private pensions to opt out of contributions to Serps.
When someone retires, a deduction is made to reflect those contracted-out years. But HMRC’s online tool failed to show these manual adjustments, meaning some users were incorrectly reassured that they had already done enough to secure the maximum pension.
As a result, many may now find they fall short – unless they pay to fill the gap. Those affected will be allowed to top up missing National Insurance years with lump-sum payments of up to £907 per year, potentially stretching back to 2006. Normally, voluntary contributions can only be made for the previous six years.
Former pensions minister Sir Steve Webb, now a partner at consultants LCP, warned that not everyone could afford to make up the shortfall.
He said: “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.
“Although it is sometimes possible to put things right, perhaps by paying voluntary contributions to top up your state pension, not everyone will be able to afford to do this.
“In this digital era, everything possible should be done to make sure that current state pension forecasts are right first time and don’t leave people finding that their retirement plans were built on foundations of sand.”
Pensions expert Tom McPhail said the delay in fixing the problem was indefensible. He told the Telegraph: “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.
“Some of this is pretty complex, so things can go wrong and systems can be amended. But if they’ve known about it for years, people need accurate information.
“There’s no justification or excuse for not having fixed the problem yet. It’s extremely disappointing and ministers should be asking some pretty pointed questions as to why they haven’t addressed these problems.”
HMRC said it does not know exactly how many people are still affected but confirmed it would allow those misled by the tool to make voluntary top-ups from the date they received an incorrect forecast.
The tax authority added that it would consider compensation “where appropriate”. A Government spokesman said: “We apologise to those whose online state pension forecasts failed to include contracted out deductions – but while this error shouldn’t have happened, it’s important to stress that ultimately no one’s state pension calculation has been affected.
“Anyone with contracted out deductions who is eligible to increase their pension by making voluntary contributions may still do so.”