£500 million state pension underpayments identified - are you owed money?

Around £500m has been identified in State pension underpayments for the period between 11 January 2021 to 31 October 2023. 

The government said more than 82,000 underpayments have been located, worth just over £6,000 each on average.

These errors have occurred due to administration errors, such as incorrect recording of claimants' National Insurance contributions, made by the Department for Work and Pensions. These errors have been found to date back as far as 1985.

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While the DWP 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.  

“While it is clearly good news the government has identified almost £500 million of state pension underpayments, this is still well below the near £3 billion in total costs the DWP is expected to incur once the correction exercise has been completed," Tom Selby, head of retirement policy at AJ Bell, said. 

Former pensions minister, Steve Webb, who is now partner at consulting form LCP, said the continuing scale of state pension underpayment was truly shocking, as this is not just a historical problem with 6 in 100 new pension claims being underpaid.

“Urgent action is needed to drive up standards of administration so that pensioners can have confidence that the pension they are being paid is correct," Webb said.

Who are the underpayments affecting?

The majority of errors affected married women who didn’t get an automatic increase to their state pension when their husband retired.

There were also errors recording credits for time spent at home with children.

The married woman’s rate of state pension is available to married women who do not have the full 30 years of National Insurance Contribution. The rate is set at 60% of the basic state pension your spouse gets.

This means married women could be entitled to claim up to £85 based on current rates. But currently hundreds of thousands of women could be missing out.

The errors were “primarily caused by the complexity of the basic state pension system”, said Helen Morrissey, head of retirement analysis at Hargreaves Lansdown.

The DWP is in the midst of a correction scheme to adequately pay over 200,000 people who are receiving the wrong state pension.

“Many of these underpayments go back years and amount to thousands of pounds. Government is making headway in making these repayments, but the scale of the problem is vast, and it will take time to complete but in the meantime many of these people have been under financial strain that they didn’t need to be,” said Morrissey.

The DWP also said the state pension overpayment rate was 0.1%, or £100m, for the 2022/2023 financial year.

How to check if you’re getting the right state pension

Under the DWP’s correction scheme, most should be contacted automatically, but many married women are not.

If this is the case you should contact the Pension Service, and to check if you are being underpaid, you can use this tool on LPC.