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National Insurance Credits

Volume 463: debated on Monday 23 July 2007

People claiming incapacity benefit are entitled to receive national insurance credits for periods when they are unable to work. Such credits count towards accrued entitlement to state pension, incapacity benefit and other contributory benefits.

Details of such credits are held on HMRC’s National Insurance Recording System (NIRS2) and this Department’s Pension Strategy Computer System (PSCS) which records details of periods of incapacity for people claiming incapacity benefit.

It has become clear that discrepancies exist between the data held on these two systems—as was noted in the National Audit Office’s report on the National Insurance Fund in February 2006. These discrepancies have their origin in the introduction of NIRS2 in 1998 and the subsequent transfer of data from PSCS to NIRS2 on periods of incapacity. These discrepancies mean that some people may be receiving the wrong amount of contributory benefit. The main benefits affected are state pension and incapacity benefit. The cases most likely to be affected are those where an individual made a claim for incapacity benefit between 1998 and 2006.

Action has been taken to ensure that these credits are now being correctly recorded and, accordingly, I am now in a position to announce how this Department intends to handle those past cases where errors have occurred.

We estimate that up to 30,000 people may have had underpayments of benefit and about 90,000 have had overpayments. In cases of underpayment, the error does not necessarily mean that individuals have been receiving less money through benefits. For example, in the majority of the cases involving state pension, the underpayments will have been made up by additional pension credit payments. In the case of incapacity benefit underpayments some individuals will have received income support which will have reduced or extinguished any potential loss.

It is, nevertheless, clearly right that all such underpayments should be identified and the correct amount of contributory benefit paid, and any associated income related benefit reviewed. This Department will begin this work in August and aims to have completed it by early 2008. In all cases this Department will individually contact those affected.

Similarly, in the case of overpayments, many of those overpaid state pension would have had a correspondingly lower payment of pension credit. In respect of incapacity benefit this would, in some cases, have led to a correspondingly lower payment, or no payment, of income support.

In respect of cases where an overpayment may have occurred, the payments will have been made and received in good faith and I do not believe it would be right to reduce them. I propose, therefore, to introduce regulations that will allow us to continue paying these benefits at their current level to the individuals concerned for the duration of their claim. The draft regulations will be referred to the Social Security Advisory Committee in the normal way before being made and laid before Parliament.

Where the individual is under pension age we will also correct the national insurance contribution records so that future claims will be correctly assessed. Where correcting the record creates any gaps in an individual’s contribution record, HMRC will write to the individuals concerned advising them of their options, if they wish to pay any missing contributions.