State Pensioners Losing £5,400 from DWP Payments Because of HMRC Mistake

Thousands of UK workers are facing the potential loss of up to £5,400 from their state pension due to a significant HMRC error.

The issue, primarily affecting self-employed individuals, stems from mismanagement of National Insurance Contributions (NICs), specifically Class 2 NICs. As a result, many workers may fall short of the 35 qualifying years required for the full state pension.

How the Error Occurred

Mistaken Class 2 NIC Refunds

The issue has arisen from HMRC incorrectly refunding Class 2 NICs to thousands of workers. According to Greg Moss, founder of Eleven.2 Financial Planning, the problem is especially prevalent among self-employed clients, many of whom are unaware they were even impacted.

Issues with Self-Employment Registration

A common cause is individuals failing to register correctly as self-employed, resulting in the loss of contribution credits. Others do not realize they must voluntarily pay Class 2 NICs if they earn below the threshold, and their contributions may be rejected or unrecorded by HMRC.

Financial Impact on Workers

Missing Just One Year Can Hurt

Tom Selby, director of public policy at AJ Bell, emphasized that missing even a single year of NICs could result in £342 less annually from your state pension.

For someone expecting the full annual payment of £11,973, this gap would result in thousands of pounds lost over a typical retirement—especially since the figure is protected by the triple lock.

Issue	Details
Average Loss	£5,400 from state pension
Annual Shortfall	£342 per missed qualifying year
Required NI Years	35 for full state pension
Full State Pension	£11,973 per year
Affected Group	Mainly self-employed individuals

Expert Warnings and Recommendations

Voluntary Contributions Matter

Former pensions minister Steve Webb, now a partner at LCP, stressed the importance of regularly reviewing your National Insurance record. Even if you’re not obligated to pay, voluntary contributions can greatly enhance future pension entitlements.

Lack of Communication from HMRC

Greg Moss criticized the lack of clear guidance provided to the self-employed community during the changes. He noted that many still struggle to get reliable information about their contributions and registration status.

HMRC’s Response

An HMRC spokesperson acknowledged the problem, saying:

“We’re sorry to those affected and are working hard to resolve the issue.”

However, experts are urging a full review of HMRC’s refunding process to prevent further damage to retirement prospects.

The HMRC error has potentially far-reaching consequences for thousands of UK workers, especially the self-employed, who now risk receiving significantly lower state pension payouts. To safeguard your financial future, it’s vital to:

• Regularly check your NI record
• Register correctly as self-employed
• Make voluntary Class 2 NICs if under the threshold

Taking these proactive steps can ensure that your retirement savings remain intact and that you receive the full state pension you’re entitled to.

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