‘A big problem’ – HMRC scans IT systems for hundreds of thousands of women affected by potential £1.5bn pension gap

Department seeks data on child benefit claimants during the two decades leading up to 2000 who may not have accrued full state pension entitlement – and with records long since destroyed

HM Revenue and Customs is searching through its IT systems to identify hundreds of thousands of people who may have been collectively underpaid as much as £1.5bn in state pension entitlement.

The issue is related to Home Responsibilities Protection (HRP) – the HMRC-led government scheme which, between 1978 and 2020, was intended to ensure that parents and carers qualified for state pension entitlement which would otherwise only be available to those paying tax on their earnings.

To receive any form of state pension citizens must have logged at least one full year of National Insurance contributions – or the equivalent credit, as applied via schemes like HRP – with the full pension entitlement unlocked with 30 qualifying years.

HRP was replaced in 2010 by National Insurance Credits.

Up until 2000, those claiming child benefit were not required to provide their National Insurance number. It is believed that this may have caused hundreds of thousands of citizens – the overwhelming majority of whom are women – to miss out on claims for HRP and, consequently, higher state pension payments.

An initial “correction exercise” took place around the time that HRP was phased out and replaced by National Insurance Credits.

But the Department for Work and Pensions – which administers the state pension – discovered last year that there were likely to be many more “errors” in accruement of HRP, leading to a total pension underpayment of between £300m and £1.5bn.

A major obstacle in definitively identifying those who may have been affected is that many of the records – which cover the period from 1978 to 2000 – have long since been destroyed or deleted by HM Revenue and Customs.

In evidence recently given to Parliament’s Public Accounts Committee, Richard Hawthorn, director of operational excellence in HMRC’s Customer Service Group, acknowledged the scale of the difficulty, but said that the department is combing through its databases to find those who may have missed out on HRP.

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“It is a big problem, and quite a challenging one because of the records that we do not have any longer,” he told MPs. “We are doing various scans on our IT systems to identify the very likely cohort of parents who could have been eligible for HRP. We think, on the basis of early scans, that that could be several hundred thousand people, although, as the DWP accounts have said, we think the actual number of people affected will be smaller. We will write to all those people progressively. We expect to start doing that… certainly by the end of September. To begin with, it will be a small volume, so that we can start to understand the number of people who will come to us.”

A government report from 1998 shows that 96% of child benefit claimants were female, and the HMRC and DWP have indicated that the vast majority of those affected by the HRP gaps are women in their 60s and 70s – or those in that age bracket who have died in recent years.

Those contacted by HMRC will be advised that they “may have been eligible for HRP” and will instructed on how to make a claim, Hawthorn said. In addition to these proactive invitations, the department has also created an online tool allowing people to check whether they might have unclaimed HRP allowance.

The HMRC director indicated that the tax agency hopes to complete the process of working through potential claims by 2025.

“The plan is to start small, and learn as we get feedback from customers, understand the behaviours and how they are responding to it,” he told MPs. “We plan to roll that out to cover all those several hundred thousand—[or] whatever it is—within the next 18 months.”

All claims formally submitted will be checked by HMRC and details of those that are discovered to be eligible will be passed on to DWP to process payments of consequent additional pension entitlements.

The DWP’s permanent secretary Peter Schofield, giving evidence alongside Hawthorn, said: “We have a ‘business-as-usual’ process for people who, for whatever reason, identify a gap in their national insurance record and have that corrected by HMRC. We can deal with that, set it right going forward, and deal with any underpayment.”

The department believes that the average underpayment will add up to £5,000 for those that still alive, and £3,000 for those that have died.

Based on a payment of £4,000 a head, the – rather broad – estimate for a total eventual bill of £300m to £1.5bn equates to between 75,000 up about 375,000 ultimately receiving a payout.

Sam Trendall

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