Robert Blake: ‘I went in with my eyes open. I was really aware there was a potential problem. I didn’t go there blind’
A self-employed saver snared by the baffling state pension top-ups system has won a £540 refund and received an apology.
Robert Blake, 62, had grilled government staff on whether filling a four-year gap in his payment record would improve his pension, before handing over any cash.
When to his dismay his top-ups still turned out to be worthless, his attempts to sort this out resulted in him receiving a further round of conflicting information, then a firm refusal by the taxman to return his money.
Mr Blake, a retired gardener from Derbyshire, wrote about his ordeal to our pension expert, Steve Webb, who recently condemned the ‘Russian Roulette’ top-ups system in his column.
‘You are my last chance of recovering my refund,’ he said in his message to the former Pensions Minister. ‘This is a lot of money for me and money which I cannot replace.’
After This is Money challenged HMRC about its treatment of Mr Blake, it promised him a full refund and an extra £135 by way of apology.
>>>Read HMRC’s full statement and Steve Webb’s comment on this case below
This is Money and our sister publication Money Mail called for an overhaul of the state pension top-ups offered to millions of savers after a deluge of complaints from readers about the confusing and chaotic system.
We covered numerous cases of savers who bought worthless top-ups and were refused their money back, before HMRC changed its stance and started routinely issuing refunds.
Those involved ‘class three’ top-ups paid by employed people.
Why do some top-ups NOT improve the state pension?
An overhaul in April 2016 replaced the old two-tier system with a flat-rate state pension, which is now worth £175.20 a week if you qualify for the full amount.
As a result of the revamp, some people have already maxed out any possible benefits from the old basic rate state pension, and will only find it worth buying top-ups – officially known as Class 3 contributions – for years following the changeover.
However, it depends on your personal National Insurance record, whether you were contracted out of the second state pension at any point, and other individual factors.
As Mr Blake was self-employed and his profits were under the annual limit for making compulsory contributions, he made voluntary ‘class two’ National Insurance payments to boost his state pension – see the box below.
When he bought his top-ups in June last year, Mr Blake was aware they sometimes turn out to be worthless, yet he still fell foul of the system.
He says before the purchase he questioned Department for Work and Pensions and HMRC staff closely during phone calls because he wanted to avoid this happening to him.
‘I went in with my eyes open. I was really aware there was a potential problem. I didn’t go there blind. I was very upset,’ he told This is Money.
When Mr Blake realised his top-ups had not increased his state pension, he says he had another round of frustrating calls with Government staff.
In the first, he was told he would get a refund. In the second, he was told he must send more information, which he supplied. In the third, he spoke to a staff member he says was ‘adamant’ he would not receive a refund.
Mr Blake adds that whenever he called the DWP or HMRC he was forwarded up to five or six times, and he kept being told someone else had given him wrong information, or another department would have to deal with his enquiry.
He was constantly unsure whether he was talking to staff at DWP or HMRC, which both deal with top-ups.
Eventually, he received a letter from HMRC’s complaints team which said: ‘I can appreciate how upsetting this matter has been, but I am afraid that once NICs have been paid, they cannot be refunded…I hope any future dealings with this office will be more agreeable.’
HMRC says there is a difference in the law between class 2 and class 3 National Insurance contributions which came into play when it initially dealt with Mr Blake’s request for a refund.
In its statement below it clarifies that if class three contributions were ‘correctly paid’ it does not have to pay refunds.
However, HMRC means this in the sense that correct procedures under the law were followed, not that the top-ups were correct in that they improved someone’s state pension.
What are the NI rules for the self employed?
You must make compulsory ‘class 2’ payments if your profits are £6,475 or more a year, and ‘class 4’ ones if your profits are £9,501 or more a year.
But if your profits aren’t high enough you can make voluntary class two payments if you wish to improve your state pension, and this is what Mr Blake chose to do.
Only class 2 contributions help the self-employed build up a state pension. The Government explains the rules here.
What does HMRC say?
‘When a customer wishes to pay Class 2 National Insurance contributions for periods where they have held a valid exemption certificate (for periods prior to April 2015) or were not required to pay Class 2 NICs, they should use the Check Your State Pension service or speak directly with the Department for Work and Pensions before doing so,’ says a spokesperson.
‘The law does not provide for refunds of Class 2 contributions where they have been correctly paid and HMRC and DWP guidance makes clear that customers should make these checks before paying NICs voluntarily.
‘However if the service we provide falls below the high standards they expect we will review cases to ensure customers are treated fairly. We will contact Mr Blake to advise him of the outcome and apologise if the service we have provided did not meet his expectations.’
When we asked for more information, HMRC added that it uses the terms ‘correctly paid’ to mean class two contributions were paid in line with the law in years for which they are being purchased.
‘The legislation which governs what HMRC may or may not do sets clear differences between the circumstances when Class 2 NICs can be refunded and when Class 3 can be refunded.
‘These criteria recognise that Class 3 is paid with the express purposes of building entitlement to contributory benefits, whereas Class 2 is a liability of the self-employed which some low earners can be exempted from.’
Top-ups are ‘baffling’ to ordinary people
Steve Webb, now a partner at consultancy firm LCP, says: ‘Yet again, the baffling complexity of the National Insurance system has left someone at risk of being seriously out of pocket.
‘There should be a simple principle that those who have paid National Insurance on a voluntary basis can get it refunded if it has not improved their state pension position.
‘Having different rules for different class of NI contributions just makes it even more difficult for the ordinary taxpayer to know where they stand.’
In a previous case, HMRC defended informing a saver his £2,500 of top-ups would ‘count towards’ his state pension, although it later emerged they would not increase his payments in retirement.
In a confounding exchange, This is Money sent HMRC a copy of its own letter to our reader, to which it responded: ‘The letter says that there are enough National Insurance contributions to count towards state pension.
‘This is not the same as improving the state pension outcome.’
Have you bought worthless state pension top-ups and not had a refund?
Write to us at email@example.com. Please include a phone number – this will only be used to follow up about your top-ups, not for any marketing purposes.