Inland Revenue 'glitch' creates £15bn pension crisis

Around ten million people face a state pension shortfall because of a glitch in the Inland Revenue's computer systems.

Problems in switching over to a new system meant up to a third of UK workers were not sent reminders for five years between 1997 and 2001 warning them they needed to top up their national insurance contributions.

As a result it is mainly low-paid workers whose NI contributions did not meet the £4,625 minimum who will now need to pay an extra £1,500 to qualify for the full state pension when they retire.

The Revenue is to begin notifying those affected and insisted they will be given an extra five years to make up the contributions.

A statement released by The Revenue said: "Starting later this year the Inland Revenue will contact people who could have gaps in their records for the years from 1996-97 to 2001-02, to allow them to check their positions and make voluntary contributions if they wish to do so. Everyone will be given extra time to pay voluntary contributions."

Backlogs of work caused by the transfer to the National Insurance Recording System (Nirs2) in 1998 caused the Revenue to stop sending out the reminder notices.

The Nirs2 system and has been dogged by spiraling costs and delays since the contract was signed in 1995. It is not the first time pensions have been hit by computer problems and supplier Accenture was forced to cough up £3.9m in compensation to the government for delays in payments to pension companies in 1997 and 1998 worth £1.5bn.

The department is currently in the process of choosing a supplier to run its IT for the next 10 years in what will be a £4bn deal. Incumbent EDS is bidding against the BT, CSC and SchlumbergerSema Fusion Alliance and the Cap Gemini Ernst & Young and Fujitsu partnership.