People retiring from April might get wrong pension

News


08 Feb, 2016

People retiring from April might get wrong pension

Roughly 4 million people retiring from April are at risk of receiving an incorrect amount of state pension, due to the fact that their incomes are being calculated using data that is "riddled" with errors, deVere Group has learned.

Britain's biggest company pension schemes have repeatedly warned Ministers that the data being used to calculate the new "flat-rate" pay-outs is unreliable, meaning people could receive as much as £6,500 too much or too little over the course of an average retirement.

Sources said that when pension schemes and HMRC compare savers' records an average of one in five does not match. This is because the data has been manually collected each year since 1978. In the worst cases around half of savers' records held by pension schemes do not match HMRC records with errors distorting people's incomes by up to £5 a week.

The problems relate to the "contracted out" part of someone's pension, whereby some 18 million workers were in the past given the option to swap an element of their state pension for a base level of final-salary-style pension income.

Savers who "contracted out" of their state pension entitlement at any point, will have an amount deducted from their new, flat-rate pension, the maximum level of which is £155.65.

From April 6, the new state pension will replace the current basic pension worth £119.30, which has additional elements.

Contracted out data is, under the new state pension, for the first time being used to calculate the level of basic state pension pay-out. Previously, errors relating to contracted out information would not have affected state pension payments. It has also emerged that some 6 million people whose funds have since been transferred into personal pensions may find that their full records no longer exist. This is because the Government scrapped rules forcing personal pension providers to collect this data in 2012.

Last night industry experts claimed the Government has known about the problem for years and has chosen to ignore it. In an effort to contain the problem, pension schemes have begun a "mass data reconciliation" process with HMRC in which they will check millions of pension savers' records against HMRC's own data.

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