Today This is Money and Money Mail call for an overhaul of the state pension top-ups offered to millions of savers.
We have received a deluge of complaints from readers who have fallen foul of complex rules and poor advice.
Savers in their 50s and 60s are paying up to £2,000 extra in taxes to boost their weekly retirement payouts.
They say they are being led to believe they have gaps in their National Insurance records and that a one-off payment will give them a higher income for life.
But many are then finding the payment makes no difference to their state pension at all. And, even worse, they are being denied a refund by the taxman.
Worthless top-ups: Savers are paying up to £2,000 extra in taxes to boost their weekly retirement payouts, but some belatedly find they will make no difference
Those affected say they feel misled by staff at both the Department for Work and Pensions, which runs the Class 3 National Insurance top-up scheme, and HM Revenue & Customs, which collects the payments for the Government.
Since This is Money and Money Mail first raised the alarm in November, as more people came forward following our investigations in September, the taxman has started routinely issuing refunds — in some cases to savers it had fobbed off for months.
Our joint investigation today reveals HMRC has been forced to issue new guidance to staff over fears they have been wrongly rejecting refunds.
We also found HMRC has rebuffed customers by saying they acquired ‘bereavement benefits’ through the payments, even though these have proved worthless.
The official websites detailing the Class 3 NI top-up scheme fail to warn savers when their payments won’t make any difference to their payouts.
Have you been refused a state pension top-up refund?
If HMRC has turned down your refund request, get in touch with firstname.lastname@example.org and email@example.com.
And, alarmingly, officials say they do not track how many people get a pension boost after paying Class 3 NI.
This raises the prospect that some of the estimated 12,000 people who top-up their state pension every year have lost out without realising, or have given up after repeatedly being denied a refund.
Now, This is Money and Money Mail want HMRC to examine every top-up payment to make sure no saver has been left out of pocket.
And we want the taxman to issue automatic refunds to anyone whose state pension did not increase, or increased by less than they were led to expect.
Both the DWP and HMRC must also give clearer risk warnings online and over the phone when customers apply.
Neil Duncan-Jordan, of campaign group the National Pensioners Convention, says: ‘The Government needs to get a grip on this.
The top-up is practically a lottery at the moment and people must be given their money back if it is not going to do any good.’
How the state pension top-ups are meant to work
Retirement boost: An estimated 12,000 people top up their state pension every year
The voluntary Class 3 NI contributions scheme lets you fill in gaps in your NI record from the past six years (in rare cases, ten) by paying a lump sum.
The cost should be a maximum of £741 a year, which buys £237 a year income for life. It is a vital scheme that, in particular, helps women who took time out to look after children.
But a quirk in the system means savers are able to pay into the scheme even if it doesn’t boost their state pension.
The confusion has arisen due to the arrival of the single-tier state pension, worth £159.55 a week, in 2016.
To qualify for this amount, savers need 35 years of full NI contributions. By comparison, they only required 30 to get the full basic £122.30-a-week pension under the old scheme.
To ensure no pensioner loses out, the Government works out if you would have been better off on the old scheme. If it finds you would have been, and you already had the full 30 years of NI contributions by April 2016, any attempt to boost your pension will be futile.
However, if you have a gap from April 2016 and anticipate future gaps, such as if you have recently stopped working, it is possible to buy these additional years and boost your state pension. But you should still check before paying.
Savers denied refunds by HMRC
Savers say the risk of payments failing to boost pensions is not being explained by the DWP and HMRC officials or on their websites. Often, they only realise something is wrong when they check their projected state pension and find it has not increased.
In many cases, HMRC is fobbing off savers who try to claim a refund by saying the extra payments help boost their entitlement to bereavement benefits.
These pay a set amount to a spouse or civil partner if you die before state pension age.
Lesley Plater, with husband Roy: Retired office manager is still trying to get a refund
But those who pay for Class 3 NI are typically within a few months of state pension age. Others are beyond it, so their spouse could never claim. Some have no spouse or civil partner at all.
All those denied refunds say they would never have paid in for bereavement benefits alone.
I’ve been fighting for a refund for almost a year
Retired office manager Lesley Plater, 64, has been battling for a refund since April last year.
After calling the DWP and HMRC, she sent a cheque for £308. Lesley says she was never told the money might not boost her pension.
In April 2017, she discovered her pension had not increased and tried to recover the cash.
HMRC refused, saying the extra NI years would pay for bereavement benefits. But Lesley, who lives in Gosport, Hampshire, had already reached state pension age, so her husband Roy, 58, was ineligible for the money if she died.
‘It is not a huge amount, but I can’t afford to lose it,’ says Lesley. ‘It would go towards a holiday or all kinds of things.’
She also voiced great frustration with the bureaucracy of the top-up process.
‘The contributions people don’t seem to talk to the tax people. There seems to be a breakdown of communications. There is not a whole picture. There is no one person you can contact.
‘We need one contact point by email or phone, to look at the whole situation. You have to repeat your story again to no avail.’
Lynne Pilcher, 60, found three years of gaps in her NI record after checking her state pension forecast on the DWP website last July.
Lynne Pilcher: ‘The system is a mess’
It said she would get about £120 a week, rather than the £159.55 maximum. The retired customer service manager, who lives in Valencia, Spain, with husband Terence, says she wasn’t warned that her £2,067 payment might not improve her income.
When she logged on a few months later, her forecast was unchanged. She spent six months battling with the taxman, before winning a payout in January.
‘The system is a mess,’ says Lynne. ‘It seems as though the right hand does not know what the left is doing.’
She adds: ‘Paying over £2,000 to increase your state pension is one thing but paying it for nothing quite another.’
Former teacher Gillian Armstrong, from Tring, Hertfordshire, also tried to recover money from HMRC, and only got a refund after a six-month battle with the taxman.
Gillian says HMRC initially told her the £733 would pay for bereavement benefits even though she was already beyond state pension age.
She claims the DWP and HMRC ‘misled’ her when she initially asked about making voluntary National Insurance contributions to improve her state pension, after which she fell into the trap of making a wrong payment.
The 64-year-old, who is married to Moore and retired in 2014, says staff gave her ‘baffling’ and differing information during a number of telephone conversations.
She says: ‘I have received contradictory advice at every turn.’
Gillian Armstrong, with husband Moore:’ I have received contradictory advice at every turn’
A 66-year-old retired civil servant who did not wish to be named got back £2,700 after a long wrangle with HMRC.
He dismissed HMRC’s claim that he qualified for bereavement benefits as ‘irrelevant’, because he had already passed state pension age when he made his payment.
And he told us: ‘I think the whole thing is a disgrace, not to mention the shambolic way they behave. If any other organisation acted in this way they would be held to account by the various regulators, but not HMRC.’
In response to a Freedom of Information request by former pensions minister Sir Steve Webb, now of insurer Royal London, HMRC said it ‘does not hold’ records of how many refund requests have been made, how many were successful or what the amount refunded was.
A spokesman for HMRC says it has received a ‘few dozen’ requests for a refund and all but one has been paid.
Rebuffing savers: In many cases, HMRC is fobbing off people who try to claim a refund by saying the extra payments help boost their entitlement to bereavement benefits
New applicants should get a decision within 15 working days and a payment seven to ten working days after that.
HMRC refused to review all payments of Class 3 NI contributions. ‘We’re sorry some customers had to wait a little longer than we would like to get their money back,’ adds the spokesman.
A spokesman for the DWP says: ‘Voluntary contributions might not be right for everyone. This is why the online ‘Check your State Pension’ service signposts anyone with gaps in their record to speak to the Future Pension Centre to find out more about the scheme.’
How do you check if your top-ups will increase your state pension?
Former Pension Minister Steve Webb has written a top-ups guide which you can find here.
The Government’s Check your State Pension service should tell you if you have any gaps in your National Insurance record.
The details for each year should show how much to pay and by when, and there is a link to a page giving more information about voluntary contributions.
This tells you how to contact the Future Pensions Centre – phone 0800 731 0175 if you are in the UK or 44 (0)191 218 3600 if you are abroad.
The DWP says this service includes providing personalised information to help someone consider if making additional voluntary NI contributions is the right option for them, but it cannot provide advice to people.
It points to terms and conditions, which it says are provided prominently, that state: ‘You should not rely on this information, as it does not amount to advice. You must get professional advice when planning for your retirement.’
The Government’s page about voluntary NI contributions also says you may want to get financial advice before making them.
However, while independent financial advisers will have some knowledge of the state pension system, they are not specialists in the fine detail and paying for their assistance about top-ups alone might not be cost effective.
THIS IS MONEY’S FIVE OF THE BEST SAVINGS DEALS