What has happened?

People who wish to receive their full state pension when they retire have just been told by the Inland Revenue (IR) they will have to pay extra national insurance contributions.

They have the option of paying up to �1,500 more in order to reach the full state pension of �77.45 per week for a single pensioner.

Who will this affect?

The reminders are usually issued to all those who have not paid national insurance contributions continuously for 45 years up to retirement.

For example, they may have had periods of unemployment or chosen to have a career break.

That is about a third of all workers - an estimated 10 million people - who have been warned by letter about the latest setback.

Most of them are on low incomes and it is most critical for those near retirement age.

How did this happen?

A computer problem at the IR meant that for five years, reminders were not sent to people who had not built up their full entitlement.

Because of their break in employment, they were not due to get their full pension.

The reminder would have advised them to top-up their contributions - if they could afford to do so - in order to make sure they received the full pension on retirement.

The computer error is thought to have come about when the IR changed over to a new system in 1998.

Why does unemployment reduce a person's pension?

Anyone who earns less than �4,625 in a year has not made a full year's National Insurance contributions.

Therefore, their pension is reduced accordingly.

But by topping up their contributions, they can restore their pension to the full level.

What is the IR doing to help?

It has said no-one will lose any money over this and only 4% of workers usually choose to make any top-up payments.

So it is only a small percentage who would have acted on the reminders, had they been issued as usual.

The IR has given those affected an extra five years to pay off any shortfall, with the deadline extended to April 2008.

How serious is this mistake?

The BBC's personal finance reporter, Andrew Verity, said it was not an urgent crisis that would leave pensioners out of pocket, but it was a serious embarrassment for the IR.

The IR system has been riddled with problems since its introduction in 1998.

Last year, it had to ask 42,000 self-employed people for NI contributions they failed to collect.

The Liberal Democrats have demanded an inquiry, following the latest error.