Four million retirees may lose £6,500 each due to pension errors

UP TO four million people retiring from April are at risk of receiving an incorrect state pension because their incomes are being calculated by data that is “riddled” with errors, The Telegraph has learned.

The biggest company pension schemes have repeatedly warned ministers that the information used to work out new “flat-rate” payouts is unreliable. Pensioners could receive up to £6,500 too much – or too little – over the average length retirement.

Sources said that when pension schemes and HM Revenue and Customs (HMRC) officials compare savers’ records, an average of one in five does not match. In the worst cases around half of savers’ details do not match HMRC records, with errors distorting incomes by up to £5 a week.

The problems relate to the “contracted out” part of a pension; 18 million workers were given the option to swap an element of the state pension for a base level of final-salary-style income.

Savers who “contracted out” of their state entitlement will have an amount deducted from the flat-rate pension, the maximum level of which is £155.65 a week. From April 6 the new state pension will replace the current basic pension worth £119.30, which has additional elements.

Contracted out data is being used for the first time to calculate the basic pension level – previously any such errors would not have affected payments. It has also emerged that six million people whose funds have since been transferred into personal pensions may also find their full records no longer exist, as the Government scrapped rules making pension providers collect this data in 2012. Industry experts claim governments have known about the problem for many years but have chosen to ignore it. Schemes have begun a “mass data reconciliation” process with tax officials to check millions of savers’ records against HMRC data.

This will take until 2018, so current calculations use unchecked data. Royal Mail and BT pension schemes have warned of the dangers. Frank Field, the Commons work and pensions committee chairman, spoke of “pensioners’ expectations about their retirement income being raised beyond reality”.

Robin Ellison, a partner at law firm Pinsent Masons, said: “The data are riddled with imperfections and huge amounts of people will be afffected. The Government has known about this for 30 years but has chosen to hide it.”

HMRC denied there was any problem with its information. A spokesman 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 to make sure their members’ records are accurate.”