Up to 500,000 women who took time off work to bring up their children are in line for £1 billion in unpaid state pension benefits.

After an investigation by The Times, the Government has admitted that flaws in the pension system mean that huge numbers of women may not be receiving their full pension. Now it has begun two urgent investigations to identify them.

Mike O’Brien, the Pensions Reform Minister, said: “We are going to review the national insurance records of vast numbers of women approaching or over pensionable age who are not entitled to the full basic state pension.”

It is thought that two groups of women may be missing out on an average of several thousand pounds each.

The first problem affects women who stopped working to bring up children and received child benefit. They should be automatically rewarded in retirement with a boost to their state pension. If the system is working properly, home responsibilities protection (HRP) reduces the number of years of national insurance contributions women need to qualify for a full state pension. Accurate national insurance records are crucial.

However, a six-month investigation by The Times, using the Freedom of Information Act, parliamentary questions submitted by the Liberal Democrats and calculations by the accountancy firm Grant Thornton, found last year that no checks were made by the Child Benefit Office to verify national insurance numbers until 1994 because women did have to supply these details on their forms. It was not until May 2000 that it became mandatory for child benefit customers to do so.

In May 2007 the Government claimed that the statistics cited by The Times were completely wrong. Now officials are to undertake an investigation likely to take up to a year.

Mr O’Brien said: “The Department for Work and Pensions and HMRC \ have started urgent work on a special exercise to identify those who may have been affected — this will involve reviewing the national insurance records of thousands of women who are over state pension age.”

The Government will be scrutinising the records of women who have gaps in their records between 1979 and now. Despite claiming that The Times’s statistics of up to 500,000 women are incorrect, it is unable to provide any figures of its own.

Steve Webb, the Liberal Democrats’ pensions campaigner, welcomed the Government’s action. “While HRP should be awarded automatically I have come across significant numbers who have been missing out,” he said. “I have been pursuing this for over a year now having first been alerted to it by The Times. It is important that this new investigation is systematic. There could be hundreds of millions of pounds at stake.

“Women have always been the poor relation when it comes to pensions. To not even give them their legitimate entitlement adds insult to injury.”

Separately, the Government is to write to more than 70,000 married women pensioners who could be eligible for a £1,400 windfall. Under a scheme begun in 2004, women who have gaps in their national insurance records between April 1996 and April 2002 are entitled to “buy back” the missing years at a special rate. The Government, however, failed to inform 73,000 women. They will now be contacted. The Government has already spent £33 million writing to 400,000 women about the initiative. The new exercise will cost £1.5 million.

Mr O’Brien said: “Generous rules enable women to boost their pension or to receive a backdated sum — typically about £1,400. While making voluntary national insurance contributions won’t be suitable for everyone, we want to give people the right information to help them make a choice.”

Mike Warburton, senior tax partner at Grant Thornton, said: “This is the nearest thing that many pensioners will get to free money because the entitlement to backdated pension is greater than the money they have to pay to buy that back.”

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