More state pension errors uncovered – are you affected?

A fresh wave of state pension errors has been uncovered by former pensions minister Sir Steve Webb.

Thousands of women have already been identified by HMRC as missing state pension payments. These cases relate to inaccuracies in National Insurance records for mothers – and some fathers – who took time off to raise a family. The government has been accused of making slow progress in reviewing the cases. 

Webb has previously warned that the Department for Work and Pensions (DWP) may have made mistakes when working out the amount of state pension for divorced people. But now, he has issued a new warning that people claiming the state pension, who were already widowed when they retired, may not be getting the correct payout.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

“Having had to spend years checking hundreds of thousands of historic state pension calculations for errors, you would hope that the DWP would be making sure that new claims are handled correctly,” comments Webb, a partner at the pension consultancy LCP.

“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.”

Webb says the error could cost retirees £40,000 over a 20-year retirement. He has demanded the government launch an urgent investigation into the scale of the problem.

We look at who is affected and how to check your status.

Who is affected by these new state pension errors? 

People widowed before they turn 66 are being urged to check they are not losing out on any state pension that they should inherit from their spouses.

Webb was recently contacted by four people who had not been awarded any inherited state pension when they retired. They were told by the DWP (in writing or over the phone) that they were not entitled to the money. But, in all four cases, this was incorrect. The amount of state pension has now been increased and arrears have been paid. 

Two of the cases were awarded more than £2,000 a year, "so if the error hadn’t been picked up they could have lost out on £40,000 over a 20-year retirement", said Webb.  

He adds: “In some cases, the DWP seems to have failed to automatically add any inherited state pension they were due from a late partner.

“These cases may well be the tip of an iceberg, with many thousands of people potentially underpaid.”

According to Webb, 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 6th April 2016 OR
• The late spouse died before 6th April 2016

In this case, the widow or widower can potentially inherit at least 50% of any “additional state pension”, which the late spouse built up, plus 50% of any “Graduated Retirement Benefit”.

MoneyWeek asked the DWP about these latest errors. It said: “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 revise the customer’s claim as soon as possible.”

How much state pension could widows/widowers be losing out on?

The exact amount of inherited state pension will depend on personal circumstances. However, Webb says the amount increases 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 (as this may replace part of any inherited state pension due)

More generally, the amount of inherited state pension someone is due 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

Webb tells MoneyWeek that in an extreme case, someone who had wrongly not been given inherited additional state pension could inherit the maximum additional state pension, which is more than £200 per week.

This equates to £10,400 a year - or £208,000 over a 20-year retirement. "I don’t suppose it would happen often, but it’s possible in theory," notes Webb.

How to check if you've been underpaid

LCP has created a new state pension tool to help widows and widowers check their state pension and understand what money they are entitled to inherit on top of their own state pension. The consultancy said its previous tool to help married women check for underpayments had received more than one million visits.

The government also has a tool to assess someone’s eligibility for inherited state pension amounts. There is more information on inheriting or increasing a state pension on the GOV.UK website.

What’s happening with the DWP’s state pension errors investigation?

The DWP has been undergoing a correction exercise designed to fix previous state pension errors relating to three groups of people since 2021. These are married people, widowed people and the over-80s. 

More than £280 million has been paid in arrears, so far, to around 23,000 widows and widowers who had wrongly missed out on an inherited state pension from a late husband, wife or civil partner. About £245 million has been paid to married people, while £67 million has been paid to the over-80s.

The government had previously identified more than £570 million of state pension underpayments – but this figure is set to soar.

The correction of historic errors for widows and widowers will run until the end of this year. Current estimates of the total arrears is £970 million due to 133,000 pensioners, according to the DWP’s annual report.