Kalpana Fitzpatrick
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.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely 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
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.
-
London house prices to outperform rest of UK, says economistAfter years of underperformance, London house prices are set to grow faster than the rest of the country, according to Capital Economics. We look at the reasons behind this forecast – and whether other experts agree
-
Top commuter towns in the UK – is yours on the list?Living in a city can be a good move for your career, salary, and personal life. But high house prices and hubbub can make commuting to work from a town close by more appealing. We look at the top commuter towns in the UK.
-
State pension age review launched – could it rise faster in future?The government has announced a review of the state pension age, after it warned of a “retirement crisis” and revived the Pensions Commission to boost pension savings
-
What has changed with employers’ National Insurance – and how will it impact you?Will you feel the effects of the National Insurance hike, as businesses warn of redundancies, smaller pay rises and higher inflation?
-
Workers set for new national insurance tax cut – how much will you save?News National insurance tax rates have fallen but frozen allowances may limit the benefits.
-
Budget 2024: National Insurance cut, a new British ISA, and reform of the child benefit charge - here’s what has been announcedThe chancellor has announced a host of changes, including cutting National Insurance again, and abolishing some tax reliefs. Here’s how the Budget will affect your finances.
-
Brace for a year of tax risesThe government is strapped for cash, so prepare for tax rises. But it’s unlikely to be able to squeeze much more out of us.
-
The 1% pension rule: can it help close the pensions gap?Advice Contributing an extra 1% into a pension could fill the gaps from a career break
-
Topping up state pension to become easier with new online toolAnyone looking to buy extra National Insurance contributions and boost their state pension currently has to make multiple phone calls - but a new online tool is on its way.
-
Act now to bag NatWest-owned Ulster Bank's 5.2% easy access savings accountUlster Bank is offering savers the chance to earn 5.2% on their cash savings, but you need to act fast as easy access rates are falling. We have all the details
