Millions of workers have not been credited with nearly £1.3 billion they paid in National Insurance (NI) which could mean reduced state pensions if they fail to act.

Tax authorities have not matched nine million employees' payments between 2004 and 2009, which could affect workers of all ages (see the State Pension Boosting guide).

Entitlement to the basic state pension is based upon the number of years' NI paid.

HMRC apportions blame for the mess in the pay-as-you-earn (PAYE) system on inaccuracies in forms filled out by employers. But the MP who released the figures says the tax system is outdated.

Conservative MP Ian Liddell-Grainger, who chairs the All Party Parliamentary Taxation Group, says: "These figures demonstrate why the Government is right to bring forward proposals for real-time PAYE reform.

"However, the pace of change must not slow as we need a taxation system that is fit for purpose."

How do I know if my NI has not been credited to me?

HMRC regularly writes to people where a gap appears in NI contributions, though you can contact it on 0845 915 5996 to check.

The Department for Work and Pensions also provides a state pension forecast to those approaching retirement which details missing NI years.

Also, check your P60 form your employer, which you get at the end of the financial year (in April), which details the tax and NI you've paid. Check the NI number is correct. If it's not, your NI may not be credited.

How do I correct an error?

You should contact HMRC's NI helpline on 0845 302 1479.

It may ask you to simply inform your employer of your correct NI number.

But where an old employer has gone bust, been taken over or destroyed records, you may need to dig out the evidence yourself from old P60s or wage slips.

HMRC holds payments that have not been credited in a suspense account until they are matched with the correct person.

What is the basic state pension?

To get the full basic state pension, currently £97.65 a week, anyone who reached, or reaches, the state retirement age (currently 65 for men, 60 or 61 for women) after April last year needs to have paid NI for 30 years.

Men who retired earlier need 44 years and women who retired earlier need 39.

If you're short you'll usually get a pro-rata sum. So if you have half the number of NI years you'll get £48.83 a week.

If you hit retirement age before 6 April 2010 and you've fewer than 25% of the required NI years you're not entitled to a basic state pension.

What is HMRC's explanation?

The government department says problems arise when P14 forms it receives from employers contain the wrong NI number for an employee. This is HMRC's version of the P60 detailing what tax and NI a worker has paid.

HMRC contacts employers where there are discrepancies but critics have pointed out why so many errors, dating back seven years, are therefore still prevalent.

An HMRC spokesman says: "HMRC receives around 48 million P14 forms every year from employers.

"HMRC then matches these to individuals' records. In a small proportion of cases, we cannot match these records because employers provide insufficient details.

"We make every effort to match these records. However, where that's not possible, contributions are retained until they can be matched. This is a normal part of the PAYE process.

"No-one will have a reduced pension. We write to people where we see there is a gap in their contributions and if they contact us to report a gap, we deal with the situation immediately.

"It is nonsense to suggest millions of people lose out."

Not again!

This is the not the first storm HMRC has been caught in.

A whopping 5.7 million paid the wrong amount of tax during the 2008-09 and 2009-10 tax years because their tax code – which determines their tax free allowance – was wrong.

While those errors were spotted last year, it was revealed earlier this month that 450,000 people face extra tax demands for similar errors in the 2007/08 year.

Further reading/Key links

Pension help: State Pension Boosting
Tax help: 2010/11 Tax Breakdown
Best rates: Top Savings, Top Fixed Savings
Stay safe: Safe Savings