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UK: Taxman admits millions were kept in the dark over pension shortfall

By Paul Waugh

Independent, May 16, 2003

The Inland Revenue (IR) admitted yesterday that it had deliberately refrained from alerting nearly 13 million workers to a shortfall in their pension payments.

It dismissed earlier reports that a computer glitch had led to the failure to tell relevant taxpayers they needed to top up national insurance contributions or face reduced pensions. It said the annual deficiency notification system had been suspended in 1998 because IR staff were needed to focus on current pension and benefit claims.

The move means that a third of the workforce, many on low incomes, will be told over the next 15 months that they must pay between £200 and £1,630 if they want to receive the full £77.45 a week state pension. The average payment will be £425.

The news infuriated the National Pensioners Convention (NPC) and the Liberal Democrats, both of which demanded an inquiry.

Before 1998, deficiency notices were sent out annually to anyone who had gaps in his or her national insurance payments, explaining what top-up should be paid for that year.

An IR spokesman said the notification system, which is now back in place, was not a statutory requirement but a service offered to the public. He said the decision was taken to suspend it during the transfer to a new national insurance computer system.

"It was a business decision that had to be taken at that time," the spokesman said. "People will have up to April 2008 to make payments if they want to. No one will lose out – they will be given as much time to pay as if they had been notified earlier."

Steve Webb, Liberal Democrat pensions spokesman, said: "More than a third of workers will get a brown envelope out of the blue telling them that their pension is incomplete. It will be a nasty shock."

Rodney Bickerstaffe, president of NPC, said it was the latest in a series of incidents that cast serious doubt over the entire system. "Hopefully, this time the Government will realise that the payments system must be simplified," he said.

The problem of unequal pay for women is compounded in retirement because it causes a pension gap, a joint study by Age Concern and the Fawcett Society said yesterday. Female pensioners receive less than a third of the income of men and almost a quarter of single women over 60 live in poverty.