Money Mensch: Plot your pension potential
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You could have had your state pension stolen from you without knowing it. A huge flaw in the National Insurance (NI) system means millions of people have paid for years but have not had it credited. I want to explain how to check if you have been affected and how to fix it.
● How the state pension works
You don't automatically get the full state pension on retirement, it depends on how many years you have paid national insurance for; fewer years means less pension. You accrue NI while working or if you are on certain benefits.
How it works depends on when you retire:
● Anyone who retired after April 2010 or has yet to retire.
To get the full basic state pension (currently £97.65 a week), you need to have paid NI for 30 years. If you are short, you will usually get a pro-rata sum. So if you have half the number of NI years, you get £48.83 a week.
● Anyone who retired before April 2010.
If you hit retirement age before 6 April 2010 and you have less than 25 per cent of the required NI years, you are not entitled to a basic state pension. If you have more than 25 per cent, the exact amount you get depends on your gender but, as always, the more years you pay, the more you get.
Either way, if you are missing years, this can reduce the pension you get, which means you miss out week after week, year after year.
● What is the problem?
Authorities have not tracked nine million employees' payments between 2004 and 2009 - £1.3 billion's worth. The Revenue (HMRC) says problems arise when employers send forms with the wrong NI number for an employee. The problem affects all workers, so everyone needs to check.
● How does this relate to the tax code error?
It doesn't, though it is another nasty PR hit to the Revenue's reputation. With the tax code fiasco, millions of people paid the wrong tax, as their tax code (the instruction to employers about how much tax to take) was incorrect.
Many of the errors meant people overpaid, so you could be due £1,000s back. The Revenue's only gone back a few years so far, and people are due letters for those dates.
Yet it is crucial that everyone checks their tax code is correct - use my free www.taxcodechecker.com to find if you are owed a rebate. Some people have underpaid too, and the Revenue will want the money back; there is little you can do about it.
● Back to NI – how do I know if I'm missing years?
The most obvious way is if HMRC wrote to you saying you are missing years. If that seemed strange, it could mean payments did not track.
To check your situation, dig out the letter or call 0845 915 5996.
Ask which years it has you down as paying NI and compare them to the years you worked.
The Department for Work and Pensions also provides a state pension forecast to those approaching retirement, which details missing National Insurance years.
You can also look at the P60 the employers gives you each April. Is the NI number correct? If not, payments may be untracked.
● How do I correct a mistake?
If you spot an error, contact HMRC's NI helpline on 0845 302 1479. It may ask you to simply tell your employer the correct NI number.
But if the old employer's gone bust or been taken over, you may need evidence from old P60s or wage slips. If you have no paperwork or proof, you may still be able to get the rebate. Write to the National Insurance contributions office with details: full name, address, date of birth, where you worked and copies of payslips.
It could still match the missing contributions to you.