The Department of Social Security has announced that the compensation bill for delays to occupational and personal pensions providers caused by computer system NIRS II will reach between £35m and £40m.
The Government issued the figures in response to a question from Liberal Democrat Social Security spokesman David Rendel MP.
Rendel condemns the additional costs.
He says: "The original contract cost the Contributions Agency around £138m. But these compensation payments will add a further £40m.
"That is not good value for money. Sadly it is taxpayers who have to fit the bill."