A new group of people who have been underpaid the state pension appears to have come to light, with “many thousands” potentially left out of pocket.
The claim has been made by the former pensions minister Steve Webb, who has been a key player in highlighting official errors that have resulted in thousands of people receiving too little state pension.
Since 2021, the Department for Work and Pensions (DWP) has been trying to put right previous state pension errors relating to several groups of people.
However, Webb, now a partner at the consultancy firm LCP, says his team has uncovered what looks like a new category of widows and widowers on the receiving end of DWP errors, with some underpaid by more than £2,000 a year.
The issue of state pension underpayments has been rumbling on for several years.
In 2020 the DWP confirmed there was a significant problem, and the next year the National Audit Office, the official spending watchdog, said most of those affected were likely to be women. It said the problems had been fuelled by complex state pension rules and outdated IT systems.
As part of the DWP’s correction exercise, more than £280m has been paid out to almost 23,000 people who wrongly missed out on inherited state pensions from their late husband, wife or civil partner.
The DWP estimates that, in total, 55,000 widows and widowers are affected and could be owed £650m but Webb’s findings suggest the numbers may be even higher.
He was recently contacted separately by four people who had not been awarded any inherited state pension when they retired and were told by the DWP that they were not entitled to it.
In all four cases this was incorrect, and they are now receiving a higher pension, on top of arrears they were owed, he says.
In a couple of the cases, the shortfall was more than £2,000 a year – meaning that over a 20-year retirement, the person would have lost out on more than £40,000.
Those most likely to be affected are people who are a widow or widower at the point when they claim their new state pension, and either the late spouse reached pension age before 6 April 2016, or the late spouse died before 6 April 2016.
The surviving pensioner can inherit at least 50% of any “additional state pension” – also known as the state earnings-related pension scheme (Serps) or state second pension – that their partner built up, plus 50% of any “graduated retirement benefit”. The latter was an earnings-related scheme designed to top up basic pensions that ran from 1961 to 1975.
The amount due will depend on individual circumstances.
“These cases may well be the tip of an iceberg, with many thousands of people potentially underpaid. The department needs to launch an urgent investigation into the scale of this problem,” he says.
To help people understand what state pension they are entitled to inherit on top of their own state pension, LCP has developed an online tool.
Those who think they may be affected should contact the Pension Service if they find an error.
A DWP spokesperson says: “We want to ensure pensioners receive all the support to which they are entitled and have a tool to help them understand what state pension they can inherit.”
