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10 Feb 2016

Millions of retirees this year could receive the wrong state pension

Some four million people due to retire after April this year could receive the wrong amount of state pension due to the system´s data being “riddled” with mistakes, The Telegraph has reported.

Sources to the newspaper have explained that the data being used to calculate people´s incomes and therefore the new ‘flat-rate´ payouts is unreliable. Despite numerous warnings from the UK´s largest company pensions schemes, nothing has been done about the situation so far - meaning that retirees could receive up to £6,500 too little or too much money during their retirement years.

According to these sources, around one in five records for savers contain a mistake when pensions schemes and HMRC compare records. In some cases, nearly half of the records held by pensions schemes don´t correspond with the records kept by HMRC.

One key reason for this is that much of the data has been collected and stored manually since 1978. There is also the fact that around 18 million workers have in the past been given the option to contract out of their pension, swapping some of their state pensions for a base level of pension income based on a final-salary style.

This latter situation means that savers who ‘contracted out´ of their pension entitlement at any stage will see reductions to their new flat-rate pension, of which the maximum is £155.65.

As of 6 April this year, the current £119.30 basic pension will be replaced by the new state pension, with contracted out data being used to calculate the level of basic pension payout for the first time. Before this, errors relating to contracted out data wouldn´t have affected the payment people received.

In order to help resolve the problem, pension schemes have launched a “mass data reconciliation” with HMRC to compare the records of millions of savers. Experts such has Hargreaves Lansdown´s head of pensions policy, Tom McPhail, have said that the DWP “is showing very little inclination to explain these calculations to the millions of people affected by them.”

Meanwhile, an HMRC spokesperson has said: “No pensioners will lose out. We are working closely with pension funds to make sure their records are completely up to date. All pension providers should use the HMRC checking service.”

Copyright M2 Bespoke 2016

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