To ensure means tested benefits are kept to a minimum the Government is trying to ensure everyone receives a correct pension at retirement whether via a private provider or the State Scheme.
Pensions are already overcomplicated and therefore it seems odd says Ian L Handford (former lobbyist and National Chairman of the FSB – Federation of Small Businesses) that from April 2015 the Government is introducing a number of even more complicated options.
Anyone who retires after April will be able to cash in their pension rather than receiving a permanent income from an annuity. At the same time a scheme to allow “pooling” of pensions and the final stage of auto enrolment for small businesses and possible tax change on death, creates what some observers have called a “pension revolution” says Ian.
Retirement pension is currently calculated from contributions deducted from earnings, but should any of the amounts fail to be or are incorrectly recorded, the retirement pension is affected. Fortunately at the moment everyone, whether an employee, employer or self employed person, has legal access to pension records and where errors are discovered underpaid pension can then be reclaimed.
Yet in spite of an ever increasing number of complicated changes over the years, a FREE Government Help Line set up in 2005 having access to a database of 200,000 Private sector Pension Schemes and the National NIC records (National Insurance Contributions) held by HMRC (previously the DHSS) has only been accessed by 350,000 individuals in eight years says Ian. This so-called Pensions Tracing Service Help Line is designed to assist anyone with a concern about their individual pension record. (Details at the end of this article)
Where a Private or NIC contribution has been recorded incorrectly – a regular occurrence where someone has had numerous employers, or worked on a temporary, seasonal, weekend or casual basis during their career – the final pension payable will often be incorrect says Ian. Where a firm has changed its name, the owner has died or gone away or even put the business into liquidation, the final record is highly suspect. The Government has already confirmed the Private sector schemes are holding £3 billion of unallocated money, which will only increase while errors remain undiscovered. Add to this the huge mismatching of names and numbers in the state NIC recording system and the possibilities of additional pension payments are enormous.
Currently, to receive the full State Pension (£113.10) you must accrue the equivalent of a minimum of 44 tears NIC. If ten or less years are recorded (the arbitrary figure) every £1 paid as well as contributions from the employer, are lost. It gets worse says Ian, because the family of anyone who has died before an error is confirmed, will be unable to reclaim any underpaid pension, after the contributors death.
State Pension relies solely on NIC records which in addition to determining the retirement pension itself is used to calculate additional amounts under the Graduated Pension or Post 1997 schemes. Mismatched or unrecorded contributions can therefore have an enormous effect on both the Private and State pensions, payable for life. Few taxpayers realise that any unallocated or mismatched contributions of NIC end up in a Pension Suspense Account where they will remain until an error is highlighted.
Twenty years ago Ian, as FSB National Policy Chairman, attended the DHSS Policy meetings at Newcastle-upon-Tyne where he became the sole inquisitor concerning the nightmare of unallocated monies being transferred to the State Pension Suspense Account. At the time the DHSS estimated that 5% of employer records were suspect, whereas Ian, with over twenty years experience of payroll issues, suggested the figure was more likely to be 15% – 20% particularly of small business records. It took until 2011 before an investigative journalist with the Daily Mail (using the Freedom of Information Act) finally discovered that between 2004 and 2009 – 9.3 million personal collections of NIC had been transferred to the DSS Suspense account. The Mail estimated that £1.2 billion was being retained against those five years, whereas Ian suggests that after fifty years of errors the figure more likely runs into many £billions. Should HM Treasury have to repay to individuals perfectly entitled to reclaim, the next Government may well have a “perfect pension storm” to deal with – a ticking time bomb in pension.
So what should you do!
Firstly, establish what records Private pension providers hold together with the amounts of NIC held by Newcastle-upon-Tyne records. If you were employed ask employer(s) to help, if an employer yourself or a self employed person, you can access business records or maybe involve your accountant. P60 documents are still the best proof of all (they match an employers P14) because they confirm the actual NIC paid.
Finally, the FREE Help Line details:
HMRC Tracing Service Help Line tel. number is – 0845 3000 168 or write to: State Pension Forecasting team, Future Pension Centre, Tyneview Park, Whitley Road, Newcastle-upon-Tyne NE98 1BA.
