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The sad saga of the missing pension

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When a retired chef living overseas discovered his state pension was lower than he expected it illustrated the difficulties associated with an incomplete or patchy NIC record. It also shed light on a little-known issue relating to expats and their access to UK courts and tribunals.

12th Jul 2022
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On retirement, Nicholas Medhurst discovered that his state retirement pension was lower than he expected. His case (TC08511) illustrates many of the difficulties associated with an incomplete or patchy national insurance contributions (NIC) record, highlights some of the hurdles that can be thrown in your path by HMRC, and teaches a number of precautions that ought to be taken – well before retirement – to safeguard your pension entitlement. 

It also sheds a fascinating light on a little-known issue relating to expats and their access to the UK courts and tribunals.

Background of the case

Medhurst was born in 1950. Between 1968 and 2002 he worked, both in the UK and overseas, as a chef. He now lives in Vietnam, where he has been resident for a number of years.

He suffers from a number of medical conditions, including spinal injuries, which have left him largely bed-bound and in considerable discomfort. Treatment in a UK hospital in 2016 “had a detrimental effect on his memory” and also led to the loss of a briefcase containing paperwork relating to his past employments. 

When he claimed his state pension in 2015, Medhurst was disappointed that his award was lower than he had expected. On enquiring, he learned that he had been credited with only 20 qualifying years of NICs, as against his own belief that he was entitled to at least 24 years.

Medhurst’s quest

Medhurst wrote to everyone he thought might be able to help him challenge the apparent gaps in his NIC record: 

In 2019, following a request by his former MP, Medhurst was contacted by Mr Carrick of HMRC with a schedule setting out 20 years of NICs as recorded on the HMRC system. 

He challenged these figures, and in June 2020 Ms Graham of HMRC advised him that he was only at stage two of a five-stage process: “Our disputes and decisions team will send you a notice of decision, and you can then make your appeal. There may be a delay before they contact you, but they will do so as soon as possible.” They did not.

Tell it to the judge

In April 2021, frustrated by a lack of progress, Medhurst appealed to the first tier tribunal (FTT), observing: “My appeal has been going on for over five years and I have been moved from department to department, issued with multiple reference numbers and dealt with an overwhelming amount of officers.”

The case was assigned to Judge Anne Redston, who immediately asked HMRC to confirm “whether they had made an appealable decision as to Mr Medhurst’s NIC record”. 

HMRC’s response was an application to strike out the appeal, stating:

  • HMRC had not yet made an appealable decision
  • Nothing further had happened in the period of almost a year since Ms Graham’s letter
  • HMRC was “unable to offer an approximate date by when the case will be dealt with”
  • There was “no guarantee that an appealable decision is imminent”.

The judge was not standing for this nonsense. She ruled that, based on the facts and the statutory requirements, HMRC most definitely had made an appealable decision (Carrick’s letter of 2019), and that Medhurst had plainly exercised his right of appeal against it. She directed HMRC to cease delays and serve a statement of case within 60 days.

The foreign angle

The judge’s initial case plan had been for Medhurst to give evidence by telephone from his bed in Vietnam. This plan was torpedoed when HMRC identified an urgent issue.

In the case of two countries that are signatories to the Hague Convention (which includes the UK and Vietnam), “one State should not seek to exercise the powers of its courts within the territory of another, without having the permission of that other State to do so”. This includes taking oral evidence from a witness.

The upper tribunal (UT), in its judgment in the Agbabiaka case, had issued guidance – binding on the FTT – on 16 December 2021. 

The FTT could not proceed with telephone evidence from Vietnam unless Medhurst could satisfy it that he had obtained the requisite diplomatic clearance via the Taking of Evidence Unit at the Foreign and Commonwealth Office. This would almost certainly be successful, but would take a minimum of two months and probably cost him a consular fee of £150. 

Bearing in mind Medhurst’s increasingly urgent emails begging for as swift a resolution as possible, the judge decided that Medhurst’s written submissions and evidence would have to suffice; when the matter was put to him, he gratefully agreed and the hearing took place accordingly.

The extra year

In September 2021 Richard Allen of HMRC wrote to Medhurst, after trawling HMRC’s computerised system (NIRS), which records contributions paid since 1997, and microfiche records for earlier periods. He had checked any employer that might conceivably match the names supplied by Medhurst. Where one employer was named by Medhurst as “Bookers”, Allen looked at 52 entries that included that name.

He also trawled HMRC’s tax business system, which led him to discover an employer in 2001/02 that Medhurst had not identified.

Finally, Allen researched on the internet, attempting to identify possible employers by linking trading names supplied by Medhurst with their parent companies.

Allen was able to say he had identified a further year of NICs, and that HMRC now accepted there were 21 qualifying years. 

Judge Redston ruled that the only NI contributions notified to HMRC by past employers were those for the 21 years so painstakingly verified by Allen.

Deficiency notices

HMRC brought up – quite late in proceedings – fresh evidence of “deficiency notices” that had been sent to Medhurst. Such a notice is issued after the end of a tax year when insufficient NICs have been paid to enable the year to qualify for pension purposes. 

Between 1967/68 and 2006/07 no fewer than 19 such notices had been issued, along with three “no card” notices issued in years when Medhurst had been registered as self-employed.

The purpose of such notices is to alert taxpayers that there may be deficiencies in their NIC record, and to prompt them to consider making voluntary Class 3 contributions.

Medhurst’s written statements asserted that “at no time during my employment was I aware of any problems with my contributions.” He said he had never received any communications informing him of a deficiency of NIC contributions. The judge accepted that “either (a) he had no recollection of receiving the notices, or (b) he had received them but had not understood what they meant”. 

The notices themselves were not determinative – the issue was whether Medhurst had further qualifying years, not whether he had been informed that he had missing years. They were however illustrative of HMRC’s contemporaneous awareness over many years that Medhurst’s NI record was patchy. 

This lent additional weight to the conclusion that, if Allen had not been able to track down additional NIC, HMRC had never been notified of them in the first place.

Contacting the employers

This pointed to a fundamental problem faced by Medhurst. As he himself admitted, “the catering industry is infamous for its practice of failing to record employees”. Gaps in his NI history almost certainly resulted not from errors in HMRC’s records but from HMRC never having been told about them in the first place.

Could HMRC have written to the employers named by Medhurst seeking further clarification? The judge felt this would not have been productive because:

  • the most recent missing year was over 20 years ago, and the earliest was over 50 years ago.
  • employers are only required to keep their pay records for six years, and their NI records for three.
  • Medhurst himself had “tried contacting one employer from 40 years ago only to be told that they only retain their records for seven years”.

Could HMRC have provided Medhurst with current addresses so that he could chase ex-employers? Not without breaches of the Data Protection Act 2018 and the Commissioners of Revenue and Customs Act 2005.

The burden of proof

In Medhurst’s view, it is unfair and unjust for employees to be expected to retain records for their working life in order to substantiate their entitlement to qualifying years. 

Unfortunately, that is how the burden of proof falls. As the judge summarised: “Mr Medhurst’s case rested on his recollection:
(1) as to the periods of employment with particular employers; and
(2) that at least some of those employers had paid him after deducting NICs from his pay.

He had no supporting evidence; he admitted he had problems with his memory; and he also acknowledged that ‘failing to record employees’ was a common practice in the catering trade.”

Despite her considerable sympathy for Medhurst, the judge was compelled to dismiss his appeal and uphold HMRC’s case that his pension must be based on only 21 years of contribution.

Lessons learned

HMRC routinely alerts taxpayers that their NI contributions for the past year may have been inadequate. Following up on this information should prevent any nasty surprises such as the one Medhurst received on his first day as a pensioner.

Similarly, it has always been possible to request a state pension forecast. Currently, this can be done using Form BR19 or an online application.

If it becomes clear that inadequate NICs have been recorded for any given year, possibly due to an employer’s failure to notify HMRC, the time to follow this up is within three years of the end of the tax year, while the employer’s records are still “statutory records” that HMRC can call for using its information powers.

Despite the fact that employers do not have to keep their records indefinitely, it always makes sense for the individual to hold on to their paperwork for as long as is feasible. Medhurst was particularly unfortunate in losing a briefcase full of old documents, which might conceivably have helped his case.

Ultimately, dealing with government departments is always something of a lottery. Allen proved to be a painstaking and dedicated officer who went surprisingly far in his efforts to resolve the matter. Sadly, we cannot expect to encounter his like on every occasion.

Finally, the Agbabiaka judgment provides a cautionary lesson for expats who are pursuing UK appeals. Providing evidence by video link from home may prove costly and cumbersome, which suggests that travelling to attend a hearing in the UK might be preferable.

Replies (21)

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By Hugo Fair
12th Jul 2022 13:44

Whilst interesting, the Agbabiaka judgment is not central to any of the issues here.

The three main takeaways remain the usual ones that I encounter only too often:

1. Employees should (but rarely do) check their payslips/P60s for the NICs component - not just the gross and tax portions - every year.
2. Employers shouldn't always rush to archive (aka delete) data as soon as is statutorily allowed - especially as the cost of digital storage is next to nothing.
3. Because of those first 2 points, employees should download (& preferably print off) their payslips & P60s - and keep for 'ever' (or at least until the SP is successfully claimed).

It's no good encouraging people to check their SP Forecast - because it's often wrong, but more importantly it doesn't provide any of the supporting evidence. And frankly you can no longer rely on others to 'do the right thing' - so it's down to the individual, not past employers or HMRC or DWP et al.

You can still end up with HMRC claiming that, although you suffered NI deductions, they never received them from the employer ... but unless there's an obvious 'connection' between ER & EE, they will usually cave in under the onslaught of 30-50 year old payslips!

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Replying to Hugo Fair:
the sea otter
By memyself-eye
12th Jul 2022 14:00

sound advice which will go unheeded. Most folks assume that they will get the full state pension, just as they assume that contributing 5% towards their private (although state sponsored) pensions will also produce enough to retire on whereas the value of investments in 'People's pension' et al are declining.

I of course. made sure I got my full 36 years contributions in.

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Jennifer Adams
By Jennifer Adams
12th Jul 2022 14:00

One thing I always always do when I take on a new client is to advise that they should check their state pension years. I usually say that 'if someone handed you £180 a week would you say 'no thanks'? That usually gets them to check.

However, when a client recently tried to check contributions he found that some years were showing blank. When phoning he was told that he would have to keep all info relating to his time working in the Channel Islands (reciprocal arrangements apply) and then when he reached state pension age if he didnt have enough years/not what he expected only then could he apply to get the years contributions allocated.

Another client had problems when his employer changed payroll software and forgot to carry his NIC info onto the subsequent software. HMRC have only picked up the current software months not the previous.

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By Geoff56
12th Jul 2022 14:24

"employers are only required to keep their pay records for six years"

Is that definitely the case? It appears to be at odds with the following guidance, which indicates only three:
https://www.gov.uk/paye-for-employers/keeping-records

To me, six is more logical, being in keeping with the rule for business records generally; but the guidance does appear to state otherwise.

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RLI
By lionofludesch
12th Jul 2022 15:56

Instead of defending this case in court, why don't HMRC get cracking on tracing this fella's NI contributions?

HMRC are too far up their own backside to prioritise the tasks before them.

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Replying to lionofludesch:
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By paulwakefield1
12th Jul 2022 18:10

My reading of it was that they (eventually) went to great lengths to trace NI contributions.

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Replying to paulwakefield1:
RLI
By lionofludesch
12th Jul 2022 19:35

Eventually, yes.

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Replying to paulwakefield1:
paddle steamer
By DJKL
13th Jul 2022 10:04

The taxpayer should not have had to go through the protracted process to get them to act and do their job. Their original lack of effort cannot be condoned, this is someone's life that their dilatory behaviour impacted, they are supposed to be public servants.

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By Brend201
13th Jul 2022 10:42

There is a terrible injustice here for Mr Medhurst, regardless of the likelihood that he didn't pursue the issue when he was working and possibly notified during those years.

And now I am personally concerned because I worked in the UK for over six years and hope to avail of pension credit for those years in the EU country where I now live. I'm hoping that (a) the UK authorities have my records and (b) that Brexit hasn't messed things up.

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Replying to Brend201:
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By Hugo Fair
13th Jul 2022 11:54

Well the message (for added clarity) is ... Don't hope, check!

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paddle steamer
By DJKL
13th Jul 2022 12:44

On that point I was clearing out old paperwork at home a couple of weeks ago- one part that did not get shredded was all the old P60s, notwithstanding I have also already checked contribution years for both of us: the catch is that people who do not deal with HMRC etc regularly are not aware that keeping things can be helpful.

(E.g. I have had to twice persuade my mother in law that keeping hold of the files/confirmation re the death of her late husband in circa 1980 is likely long term useful as it will give evidence that his estate wholly passed to her and her estate will therefore be able to claim an additional nil rate band; not essential, as other routes to the information, but certainly still having on file may well be useful)

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By tedbuck
13th Jul 2022 12:45

I suppose that the concept of 'Civil Servants' is now somewhat outdated. Neither Civil nor servants which suggests they should do the tasks their 'Masters' set for them.

I suppose the main problem is those 'Masters' who often seem to have no concept of the realities of life. Very good at introducing rules and regulations to waste everyone's time but no good at all at facilitating getting things done.

The astonishing thing in this case is that they should go to such lengths and presumably cost to defend a corner against a disabled man. I think it suggests an uncaring 'Service' that has perhaps forgotten who pays for it.

Bit like GPs in the NHS - getting paid for not seeing people and sending them to A&E so there is a log jam there and the really sick people can die and save the NHS money in care costs so they can pay the GPs more to do even less. Sounds just like HMRC doesn't it?

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paddle steamer
By DJKL
13th Jul 2022 13:05

All HMG spending seems to be predicated upon counting pennies and delivery of some sort of service level at a standard the expenditure allows, the standard is secondary to the pennies.

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Replying to tedbuck:
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By Hugo Fair
13th Jul 2022 13:40

I know the NHS is sacrosanct (and I have 3 nephews/nieces working in it) but I have to agree with you.

Monday last week I woke up in considerable pain with with a black dot on my shin surrounded by a red swelling that was generating heat I could feel from inches away ... so took myself to the local GP. Or rather his receptionist, who announced that he didn't have 'any slots left this week'!
When I explained (through gritted teeth) the pain I was in, she peered over her counter and said "Ooh that looks painful, I'd go to A&E if I was you" - adding that it was best to ignore the local hospital 'because the queues are horrendous'.
When I managed to get to the supposedly 'quieter' hospital, they informed me that I didn't look to be dying - and so A&E was not an option!
However they found me some other dept (acute something or other), where I had the pleasure of sitting (amongst all the people with hacking coughs) for an hour just to see the triage nurse - who agreed it looked 'nasty'.
So I joined the queue to 'see a doctor' ... and nearly 4 hours later, after a 3 minute consultation (during which the Dr didn't even inspect my leg), I was the proud possessor of a prescription for a week's supply of ultra-strong antibiotics!

Anyone who thinks there's any sign of efficiency or medical expertise, rather than mere 'admin procedures', in that saga is welcome to try it for themselves!

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By Moo
13th Jul 2022 14:28

Another area where it is important to retain all your salary payslips is with student loan deductions. My son many years back worked for an employer that properly made monthly deductions from his salary but they did not pay the payroll deductions to HMRC and after a few years went bust owing large sums in PAYE, VAT etc.
HMRC / Student Loan Company took the view that the money was lost and we should speak to the liquidators with a view to making a totally useless claim in the employer's liquidation.
Fortunately I had kept his salary payslips so could evidence the deductions and when our MP got involved HMRC backed down and treated the deductions as having been made and passed to loan company.

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Replying to Moo:
RLI
By lionofludesch
13th Jul 2022 14:33

Moo wrote:

Another area where it is important to retain all your salary payslips is with student loan deductions. My son many years back worked for an employer that properly made monthly deductions from his salary but they did not pay the payroll deductions to HMRC and after a few years went bust owing large sums in PAYE, VAT etc.
HMRC / Student Loan Company took the view that the money was lost and we should speak to the liquidators with a view to making a totally useless claim in the employer's liquidation.
Fortunately I had kept his salary payslips so could evidence the deductions and when our MP got involved HMRC backed down and treated the deductions as having been made and passed to loan company.

HMRC are notoriously reluctant to accept responsibility for statutory deductions when things go wrong.

Maybe we should just go back to the pre-1945 scenario if they can't cope.

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Replying to lionofludesch:
paddle steamer
By DJKL
13th Jul 2022 15:28

Lion, surely you were not exercising your abacus back then?

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Replying to DJKL:
RLI
By lionofludesch
13th Jul 2022 16:03

DJKL wrote:

Lion, surely you were not exercising your abacus back then?

I've always had an interest in the history of taxation, DJKL. Love the idea of Wig Powder Tax and I think that could be a significant money raiser at some point. Then there's Beard Tax - why did no-one in the UK ever think of it? Genius.

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Replying to lionofludesch:
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By Hugo Fair
13th Jul 2022 16:31

Well if you're determined to work your way down the body then you'll eventually have to raise a Merkin Tax.
But if you really want to maximise the tax take then a bit of lateral thinking would bring in taxes on tattoos and body piercings ... the impact of which would be interesting!

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Replying to lionofludesch:
paddle steamer
By DJKL
18th Jul 2022 09:47

Not keen on the latter tax as I have one.

If you want a new levy, barbecue tax- its not that I object to barbecues but they do encourage a lot of very noisy children to abandon their game consoles and run about their gardens screaming.

I also have an aversion to basketballs- yesterday was thump, thump, thump and then when next door's grandson was called in for his meal, and I envisaged a brief interval of peace, he decided to act up and have a shouting match with both his father and grandmother.

Actually, thinking it through, it should really be a tax on children.

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By Ian McTernan CTA
16th Jul 2022 16:12

This all just goes to show the system is not fit for purpose.

Surely it can't be that hard for HMRC to send out by email/personal tax account/via employer and by post a statement of state pension accrual to every person once every five years and ask anyone who doesn't agree to contact them.

Might need a few more staff to handle the surge in queries but it would lower the workload further down the line.

Could also bring in some check system to ensure everyone received it - which then issues further copies if someone says 'not received' etc.

Would be easy to design an almost totally automatic system to deal with 99% of all this and would lead to a better understanding of future pensions for both people and Govt.

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