Fresh state pension errors uncovered with retirees missing out on up to £40,000 – and it’s just the ‘tip of the iceberg’
A FRESH wave of state pension errors that have seen pensioners miss out on up to £40,000 in retirement have been discovered.
To date two major historic underpayments, largely affecting women, have been uncovered.
The Department for Work and Pensions (DWP) has been undertaking a correction exercise since 2021 to fix these errors.
But now, Sir Steve Webb, former pensions minister and current partner at LCP, says he has found evidence of a new group of cases where incorrect information was given leading to women being shortchanged.
The affected group affects those claiming the new state pension who were already widowed when they retired.
Steve said he had been contacted by four separate people who had not been awarded any inherited state pension when they retired.
They had been told in writing or over the phone by the DWP that they weren’t entitled to any payments.
In all four cases, this was incorrect and an increased amount of state pension has been arranged and arrears have been paid, Sir Steve said.
In two of the cases, the underpayment amounted to over £2,000 a year, which could potentially add up to a whopping £40,000 shortfall over a typical retirement.
For these four pensioners, an increased amount of state pension has now been put into payment and arrears have been paid.
Steve said one of the people he dealt with had said: “I personally would like to see more people come forward to claim what is rightfully theirs.”
LCP is now aiming to alert people to the errors so that they can check and contact the Pensions Service.
Steve said: “Having had to spend years checking hundreds of thousands of historic state pension calculations for errors, you would hope that DWP would be making sure that new claims are handled correctly.
“But we have found worrying evidence that this is not the case. There seems to be a particular problem for people who are widows or widowers when they claim their state pension.”
He added that in some cases, the DWP “seems to have failed to automatically add” any inherited state pension they were due from a late partner.
Steve explained: “These cases may well be the tip of an iceberg, with many thousands of people potentially underpaid.”
Who is affected?
Steve says the group most affected are those who are widows or widowers at the point when they claim their new state pension and where either:
- The late spouse reached pension age before April 6, 2016
- Or, the late spouse died before April 6, 2016
In this case, the widow or widower can potentially inherit at least half of any “additional state pension” that the late spouse built up, plus half of any “Graduated Retirement Benefit”.
The exact amount of inherited state pension will depend on individual circumstances but will be greater if the late spouse was an employee (rather than self-employed) and the widow/widower is not receiving a widow’s pension from a company pension scheme.
That’s because this may replace part of any inherited state pension due.
Steve said that more generally, the amount of inherited state pension can depend on things like:
- Whether the claimant comes under the old or new state pension system
- Whether the late spouse came under the old or new state pension system
- When the late spouse died
- Whether the late spouse was a member of a ‘contracted out’ occupational pension scheme
What are state pension errors?
STEVE Webb, partner at LCP and former Pensions Minister, explains what state pension errors are and how they can occur:
The way state pensions are worked out is so complicated that many thousands of people have been paid the wrong amount for years without even realising it.
The amount of retirement pension you get usually depends on your National Insurance (NI) record.
One big source of errors has been cases where NI records have been incorrect, particularly for years spent at home with children.
This is a system known as ‘Home Responsibilities Protection’.
Alternatively, particularly for older pensioners, the amount you get can depend on the NI contributions made by your spouse.
Errors have arisen where the Government has failed to adjust the pensions of married women when their husbands retired or failed to increase pensions when someone was bereaved and lost a husband or wife.
Although the Government has spent years trying to fix these problems, there are still many thousands of people – many of them older women – on the wrong pension.
If you have always thought that your pension seems low, then it is worth contacting the Pensions Service to ask them to check, especially if you spent time at home raising children or if you were widowed and your pension didn’t change when your spouse died.
Tool to help track down errors
LCP has developed an online tool to help people understand what state pension they are entitled to inherit on top of their own state pension at go.lcp.com/inheritingstatepension.
A tool previously launched by the company to help married women check for underpayments had over one million visits.
Steve said: “The department needs to launch an urgent investigation into the scale of this problem.”
The DWP also has a tool to help those receiving the new state pension assess their eligibility for inherited state pension amounts at www.gov.uk/state-pension-through-partner.
There is also a guide on inheriting or increasing a state pension at www.gov.uk/new-state-pension/inheriting-or-increasing-state-pension-from-a-spouse-or-civil-partner.
A DWP spokesperson said: “We want to ensure pensioners receive all the support to which they are entitled and have a tool to help them understand what state pension they can inherit.
“Delays can occur to a customer’s state pension award when not all the information we need is provided.
“In these cases, we will make a state pension award based on the customer’s own national insurance record until we have the required information.
“Once we have the necessary documentation, we will then revise the customer’s claim as soon as possible.”
Historic pension errors
One of the biggest state pension errors was first revealed in 2022 and saw an estimated 194,000 people miss out on money they’re entitled to during retirement.
Those affected are people who claimed child benefit, largely women who were stay-at-home mums, before May 2000 as they could have gaps in their National Insurance record which in turn affects the amount of state pension they get.
From 1978 to 2010, protection was provided for parents to avoid these gaps by a system known as Home Responsibilities Protection (HRP) credits.
If someone claimed child benefit before May 2000 and did not provide their NI number on the form, it’s possible that their credits may not have been transferred to their NI account from the child benefit computer.
This may affect their pension entitlement and women who are now in their 60s and 70s are most likely to be affected.
The DWP has already started sending letters to thousands of people who might have been entitled to HRP between 1978 and 2010 but have no HRP on their NI record.
When the mistake was uncovered the DWP described it as the “second largest” source of errors in state pensions.
The largest error affects married women, widows and the over 80s, which is due to be completed by the end of 2024.
According to the latest annual report, just under 100,000 people (99,558) had received payments by the end of March 2024, with a combined value of £594miilion.
This total included around 44,000 married women, 23,000 widows/widowers and 33,000 over 80s.
Around 700,000 pensioners, are also thought to be affected by the same underpayment error and are set to have their entitlements reviewed.
Many of these women did not receive the entitlement they were due under their husband’s National Insurance records.
Others did not get the uplifts they were eligible for when their husbands died.
How does the state pension work?
AT the moment the current state pension is paid to both men and women from age 66 - but it's due to rise to 67 by 2028 and 68 by 2046.
The state pension is a recurring payment from the government most Brits start getting when they reach State Pension age.
But not everyone gets the same amount, and you are awarded depending on your National Insurance record.
For most pensioners, it forms only part of their retirement income, as they could have other pots from a workplace pension, earning and savings.
The new state pension is based on people’s National Insurance records.
Workers must have 35 qualifying years of National Insurance to get the maximum amount of the new state pension.
You earn National Insurance qualifying years through work, or by getting credits, for instance when you are looking after children and claiming child benefit.
If you have gaps, you can top up your record by paying in voluntary National Insurance contributions.
To get the old, full basic state pension, you will need 30 years of contributions or credits.
You will need at least 10 years on your NI record to get any state pension.
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