Government identifies £570 million of state pension underpayments - are you owed money?

The government has identified more than £570 million worth of underpayments following an investigation into state pension administrative errors.

The department for work and pensions (DWP) is currently working on a correction scheme after investigations found more than 200,000 people missed out on higher state pension payments dating as far back as 1985.

Errors were uncovered by former pensions minister Steve Webb in 2020 and have been attributed to DWP staff incorrectly recorded National Insurance contributions.

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An update from the DWP today shows that between 11 January 2021 and 29 February 2024, 97,016 state pension underpayments have been uncovered, owing a total of £571.6m.  

Tom Selby, director of public policy at AJ Bell, says this is positive progress but highlights that the Office for Budget Responsibility has previously estimated that the correction exercise could eventually cost the DWP almost £3 billion.

“There remains a long way to go if the near £3 billion in expected total costs are to be reconciled and sadly that means many more of those affected will still be awaiting payment,” he says. 

“This saga is particularly tragic as many of the people affected will have been struggling unnecessarily for years. What’s more, the National Audit Office (NAO) has previously estimated around 40,000 of the people who were due a repayment had died without receiving it.”

Who are the underpayments affecting?

 Most of the errors are from before the new state pension launched in April 2016.

Married women who didn’t get an automatic increase to their state pension when their husband retired under old rules are believed to be one of the main affected groups.

Payouts to this group are currently at £5,713 on average, the DWP said, while a total of £243.8 million has been paid out across 317,955 cases.

It could also affect widowed pensioners from before 2016 who were not entitled to a full basic state pension based on their own contributions but could have inherited payments from their spouse or civil partner.

Average payouts to this group are at £12,486 and £262.8 million has been repaid so far after a review of 298,099 cases.

“It is absolutely critical all those affected by this scandal receive the money they are owed as quickly and efficiently as possible,” adds Selby.

“While retirees will see their state pension increase by 8.5% in April, this is likely to drag some pensioners with other sources of income into paying income tax for the first time since leaving work. Many will already be feeling the squeeze and a windfall payment worth thousands of pounds could make a real difference.

 “Once compensation has been paid, the government needs to undertake a comprehensive review of its processes to ensure these mistakes are never repeated.”

How to check if your state pension payments are correct

People should be contacted automatically if they are owed money, but there have been warnings that many married women are not being reached.

While the DWP says it has been trying to locate those who were underpaid, not everyone will get a letter and you may have to contact the DWP yourself for redress.  

If this is the case you should contact the Pension Service or use consultancy LCP’s state pension underpayment tool to work out what you could be owed.