Thousands more underpaid state pension in £1.5bn shortfall

NEW calculations estimate 237,000 people have been underpaid their state pension entitlements with the Department for Work and Pensions (DWP) now owing £1.5 billion. Here's what you need to know.

The number of people underpaid their state pension entitlements is 105,000 more people than the DWP previously thought a year ago. Some victims, mostly women, will only be able to claim for 12 months in missed payments. Others will eventually receive all they should have been given but much later than they should have.

The errors dates back to 1985 and centre around the old State Pension scheme where women could claim based on the National Insurance record of a husband, ex-husband or deceased husband.

The National Audit Office released the new figures which came to light after the Department started using a new computerised system to detect victims. Previously checks were done manually, and still victims won't know how much they are owed until their case has been fully reviewed by a specialist at the Department. Some could be owed small amounts, while others could be owed thousands of pounds. A Public Accounts Committee report in January found 118,000 pensioners the DWP could trace would receive on average £8,900, with underpayments ranging from £0.01 to £128,448.37.

Back in January, the DWP thought it had underpaid 134,000 pensioners and 90% of these were women. At the time the Department was slated by the Government's Public Accounts Committee.

Then, Dame Meg Hillier, an MP and chair of the committee, described it as "a shameful shambles", pointing out the DWP was "on its ninth go at fixing these mistakes since 2018". The latest re-calculations make it 10.

The committee pointed out the mistakes were expected to cost £24.3 million in staff costs alone by the end of 2023.

Those most likely to have been underpaid are:

Pensioners who receive low basic State Pension in their own right but are entitled to increase it using their living spouse or civil partner's contributions once they themselves are entitled to the State Pension. Widowed pensioners who are not entitled to a full basic State Pension based on their own contributions but can inherit a basic State Pension from their spouse or civil partner up to the full basic rate. 'Category D' pensioners - men and women receiving low or no State Pension who may be entitled to increase their rate from the age of 80.

A fourth category of errors has also now been detected. Credits for time at home caring for children children - known as home responsibilities protection - may be missing from National Insurance records meaning people are being paid less than they are entitled to.

Former pensions minister Sir Steve Webb, who is now a partner at pensions specialists LCP, said: "Not only is the cost of the underpayment correction exercise set to soar, DWP are now admitting a whole new category of errors.

"In both cases it is women who will bear the brunt of the errors. We need much greater transparency about all of this rather than leaving it to figures buried in the small print of annual reports. Far too many people have been underpaid for far too long."

The DWP said it was trying to complete its investigations by the end of 2023 for two of the three original affected groups, but the deadline wouldn't be met for widowed pensioners, with the end of 2024 slated by the DWP instead.

In a statement a DWP spokesperson said that delay would increase the total amount underpaid to pensioners by an estimated £14m.

A DWP spokesman said: "We are fully committed to addressing these errors as quickly as possible. We have devoted significant resources towards completing this."

It admitted that meeting its set deadlines depended on recruiting enough specialists to carry out the work. As pensions have changed a lot since the Eighties, experienced specialists are needed, with the Public Accounts Committee noting that they are in short supply.

Erin Yurday

Erin Yurday is the Founder and Editor of NimbleFins. Prior to NimbleFins, she worked as an investment professional and as the finance expert in Stanford University's Graduate School of Business case writing team. Read more on LinkedIn.