HMRC Pension Forecast Error Leaves 800,000 Facing Lower State Payments
A significant error within HM Revenue and Customs' online state pension forecasting tool has left approximately 800,000 individuals facing lower payments from the Department for Work and Pensions than they were led to expect. The issue, which has persisted for nine years, means many workers have been planning their retirements based on inaccurate financial projections.
A Nine-Year Problem Exposed
The forecasting tool, designed to help individuals understand their future state pension entitlement, has been overvaluing pensions for hundreds of thousands of users. According to recent reports, the problem first emerged in 2017, with the number of people affected rising to 360,000 by 2019. The scale of the issue has now been revealed to be far greater, impacting an estimated 800,000 people in total.
Many users have received forecasts that were too high, creating a dangerous gap between expectation and reality as they approach retirement age. The error specifically failed to correctly account for contracted-out pension deductions in many cases, leading to inflated estimates of the state pension amount individuals would receive.
Limited Fix and Ongoing Concerns
While HMRC has now corrected the error for workers who will reach state pension age before April 2029, a significant concern remains. The tax authority has acknowledged that some individuals due to retire after this date may still be receiving incorrect information, being told they will receive the full state pension amount without needing to make additional National Insurance contributions.
This situation has raised serious questions about the reliability of digital government services and their impact on crucial life planning. Former Liberal Democrat pensions minister Sir Steve Webb described the scenario as leaving workers with retirements "built on sand", highlighting the fragility of planning based on flawed official data.
Expert Warnings and HMRC Response
Sir Steve Webb emphasised the gravity of the situation, stating: "When people request a state pension forecast to use as the basis for their retirement planning, they should be in a position to be confident that the information they have received is accurate. But in too many cases, it seems that this was not so."
He further warned that while some may be able to rectify the shortfall by making voluntary contributions to top up their state pension, not everyone will have the financial means to do so, potentially leaving them with a significant income gap in retirement.
In response to the crisis, HMRC issued an apology: "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 department maintained that individuals with contracted-out deductions who are eligible to increase their pension through voluntary contributions may still do so, though this offers little comfort to those who planned their finances based on the original, incorrect forecasts.
This revelation underscores the critical importance of accurate government data systems, particularly when they form the foundation for major life decisions affecting hundreds of thousands of citizens across the country.
