The Department for Work and Pensions has estimated that it will cost £3bn over the next six years to address the issue of underpayments of the state pension to women.
Alongside today’s Budget, the Office for Budget Responsibility has published its ‘economic and fiscal outlook’ which includes an update on underpaid state pensions.
It said the DWP has identified underpayments relating to entitlements for certain married people, widows and the over-80s dating back to 1992.
It stated: “Our forecast reflects an initial estimate that it will cost around £3 billion over the six years to 2025-26 to address these underpayments, with costs peaking at £700 million in 2021-22.”
The issue of state pension underpayments for married women was first raised by pension consultants LCP back in May.
Under the old system, married women could claim a basic state pension at 60 per cent of the full rate based on their husband's contributions, assuming this would be a greater amount than the pension they would receive from their own contributions.
Since March 17, 2008, this uplift should have been applied automatically. Prior to this date, a married woman had to make a “second claim" to have her state pension increased when her husband turned 65 - and many women did not make such claims.
The DWP previously promised to search its records to unearth information on those who continue to miss out, and several thousand married women have already phoned DWP and made successful proactive claims.
According to LCP, the DWP has set up a special unit employing more than 100 civil servants to look into the issue.
Sir Steve Webb, partner at LCP and former pensions minister, said: “This figure is truly mind-numbing. When I first looked into this issue a year ago I had no idea it would explode into such a huge issue.
“Repayments of £3bn over the next five years could imply huge numbers of women have been shortchanged, potentially for a decade or more.
“The government needs to devote serious resources to getting these repayments out quickly as these women have waited long enough”.
A DWP spokesperson said: “The action we are taking now will correct the historical underpayments that have been made by successive governments and anyone impacted will be contacted by us to ensure they receive all that they are owed.”
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