HMRC State Pension Forecast Tool Flaw Leaves Thousands Facing Retirement Shortfall
A significant flaw in HM Revenue and Customs' online state pension forecast tool has potentially misled hundreds of thousands of workers about their retirement income. The government's own calculator, introduced a decade ago to aid retirement planning, has been displaying overly optimistic pension projections for many users.
Widespread Impact of the Calculation Error
As many as 800,000 individuals may have received inaccurate forecasts through the digital system, with some mistakenly believing they qualified for the full state pension when they did not. The problem specifically affects workers who were previously "contracted out" of the additional state pension scheme.
This now-defunct arrangement allowed employees contributing to workplace or private pensions to opt out of Serps contributions. When calculating state pension entitlements, a reduction should be applied to account for those contracted-out years. However, HMRC's online system failed to display these manual adjustments properly.
Delayed Response and Ongoing Concerns
Ministers were first alerted to the problem in 2017, yet comprehensive fixes weren't implemented until four years later. By 2019, it had already been revealed that approximately 360,000 inaccurate forecasts had been generated within the first three years following the tool's launch.
While the error has now been rectified for those reaching state pension age before April 2029, HMRC has acknowledged that people retiring beyond that date may still be impacted. Some were incorrectly informed they would receive the full sum and didn't need to make additional National Insurance payments.
Financial Consequences for Affected Workers
To be eligible for the full new state pension, workers require 35 qualifying years of National Insurance contributions. At current rates, that amounts to £230.25 weekly. Those impacted by the forecasting error may now discover they're falling short of this requirement.
Affected individuals will be permitted to top up missing National Insurance years with lump-sum payments of up to £907 per year, potentially dating back to 2006. This represents an exception to the normal rule that voluntary contributions can only be made for the preceding six years.
Expert Criticism and Government Response
Former pensions minister Sir Steve Webb, now a partner at consultants LCP, cautioned that not everyone could afford to cover the shortfall. He emphasized that people should be able to trust state pension forecasts when planning their retirement.
Pensions expert Tom McPhail told the Telegraph that the delay in fixing the problem was indefensible. He stated that forecasting retirement income is critical for most people, and misleading information makes accurate planning impossible.
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."
The spokesman added that anyone with contracted out deductions who is eligible to increase their pension by making voluntary contributions may still do so.
