Hundreds of thousands of people who have wasted often large sums of money by following government advice to top up their state pension are to be denied compensation, The Times has learnt.

The pension reforms announced last week in the Queen’s Speech mean that many people who were told they would get a better state pension if they made voluntary national insurance contributions have in effect thrown their money away.

More than a quarter of a million people — mostly women on career breaks, the self-employed and those working temporarily overseas — are still making voluntary payments that may be unnecessary.

Pensions experts say that the Government should consider refunds to people who could have lost thousands of pounds by being prudent. The Conservatives have insisted that the Government should do all that it can to alert people that they may be throwing their money away. The Government earns between £100 million and £250 million a year from voluntary contributions and could suffer a significant drop in income if the payments dried up.

It has encouraged people to make voluntary national insurance (NI) contributions — ranging from £400 to more than £2,000 a year — to make sure that they are entitled to a full state pension when they retire. At present, only men who have made 44 years and women 39 years of NI contributions get a full pension. The pension is reduced if there have been any breaks.

The new Pensions Bill will mean that people will get the full state pension even if they have made only 30 years of contributions. The change, aimed at reducing means testing among pensioners, means that many people who have stretched themselves to make full contributions have ended up out of pocket.

For example, someone who worked overseas for three years and kept making British national insurance contributions will end up more than £7,000 worse off than someone less prudent who didn’t make any payments.

Chris Curry, research director of the Pensions Policy Institute, said: “The Government has to consider refunds, or any other way of rewarding people who made voluntary contributions.”

However, a spokesman for Revenue & Customs, which collects the payments, ruled out any form of refund. He said: “The contributions that contributors have already paid will not be refunded if 30 qualifying years becomes law as they were properly paid at the time.”

Each year Revenue & Customs sends out 3 million letters warning people that they face a state pension shortfall unless they top up their contributions. The Government says it is not advising people to make the top-up payments, but merely telling them about the consequences if they don’t.

Revenue officials say that they have to stick with the system as it stands until the new Pensions Bill is passed. They are still collecting contributions that are almost certain to prove unnecesary and are still issuing pensions forecasts warning of the consequences of contribution breaks, even though the forecasts are almost certainly going to be wrong.

However, officials have started attaching an advisory note at the end of letters about contribution breaks saying that the legislation may change.

Philip Hammond, the Shadow Work and Pensions Secretary, said: “We urge the Government to do everything it can to alert the public to the risk and to make sure they don’t make unnecessary contributions.”

44
Years of contributions a man now needs to qualify for a full state pension

30
Years of contributions needed to get full state pension under Pensions Bill

3m
Number of letters sent out each year warning people to keep up contributions

£7,000
Amount you could end up worse off if you keep making contributions

Source: government statistics

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