Martin Lewis has warned that an error in state pension records could cost affected individuals tens of thousands of pounds, with an estimated 800,000 self-employed people impacted. The Money Saving Expert (MSE) founder highlighted the issue in his latest newsletter, noting that it stems from a 2015 change requiring self-employed individuals to notify HMRC of their status using a specific CWF1 form, in addition to registering for self-assessment.
How the error occurred
Since 2015, anyone becoming self-employed has had to separately complete a CWF1 form to inform HMRC of their new status. However, a minority of those who registered were unaware of the new process and did not submit the form. As a result, they may have received inaccurate information about their Class 2 National Insurance (NI) contributions. If they did not realize the glitch and failed to pay the correct amount voluntarily, they could have been left with incorrect gaps in their NI record, potentially reducing their state pension by thousands of pounds. For those close to the minimum number of NI qualifying years, it could mean receiving no state pension at all upon retirement.
State pension qualification explained
To receive a full state pension, individuals need a certain number of NI qualifying years, earned through employment contributions, self-employment Class 2 contributions, or free credits. Martin Lewis explains, 'Think of each NI year as a token you must gain. On the current system, you need at least 10 tokens to get any state pension at all, and very roughly 35 to get the full new state pension.' The new state pension applies to those who reach state pension age (currently just over 66, rising to 67) after April 5, 2016. It operates on a sliding scale: the minimum for 10 qualifying years is £58.24 per week (£3,028.48 per year), while the full amount is £241.30 per week (£12,548 per year). Those above state pension age receive the old state pension, up to £184.90 per week (£9,615 per year), though additional state pension can increase that amount.
HMRC's response and affected numbers
HMRC has stated that as of the 2024/25 tax year, it has improved its systems to ensure correct contributions are recorded even without a CWF1 submission. However, the error is estimated to have impacted around 800,000 people who became self-employed between 2015 and 2024. Among them, 160,000 are already at or within two years of state pension age. HMRC advises affected individuals not to contact them or submit a retrospective CWF1 form, as this could disrupt the rectification process. Instead, HMRC will contact all affected individuals by post. The letters will direct them to the Department for Work and Pensions (DWP), which will explain the impact on their state pension and help determine whether voluntary contributions are worthwhile to fill gaps.
What to do if affected
Normally, people can only pay voluntary NI contributions for the previous six tax years. However, due to this HMRC system error, affected individuals will be allowed to fill missing years going back to 2015, paying the original contribution rates rather than current prices. Those already at state pension age or within two years of it should hear from HMRC by summer 2027 at the latest. Others will be notified in stages from spring 2027 onwards. Martin Lewis urges affected individuals to watch for official correspondence and not to take action until contacted, to avoid disrupting the correction process.
