Computer blunder leaves up to 10m short on pension

A problem with a government computer system has left up to 10 million workers in the UK facing a shortfall in their National Insurance Contributions and potentially short-changed on their pension.

It appears that for five years the Inland Revenue has failed to remind workers that they are paying too little to entitle them to a full pension. This means that one worker in three will be notified that they must pay up to £1,500 to be sure of getting the maximum pension entitlement of £77.45 each week when they retire.

The revelation that it has taken five years for the problem to be identified is a major embarrassment at a time when there continues to be fierce debate over the problem of pensions.

There are fears that people due to retire shortly will find that their state pension is considerably less than they had expected.

Individuals must amass sufficient years of paid up contributions at a sufficient salary, currently £4,625 a year, to pass the threshold at which National Insurance Contributions apply.

Usually the Inland Revenue are scrupulous about notification of shortfalls, but it appears that the scale of the error was apparent when the Treasury noticed a £10 million deficit in the top-up contributions that were expected as people paid in to raise their contributions.

There have been calls for an immediate inquiry to be launched to establish how such an error could have occurred in a well-established procedure and in vital government department.

It is understood that a computer system introduced in 1998 had failed to operate as expected. As a remedial action, quietly announced last month, the Inland Revenue has extended the deadline for making top-up payments by five years.

Though the top-up payments are voluntary, the letters, when they are eventually sent out, will come as a nasty surprise to many who thought that they has contributed fully to NICs.

The Inland Revenue has been plagued with problems recently. The latest debacle was the inadequacy of a tax credit system that has all but collapsed under the deluge of applications.

(SP)