State pension underpayments hit highest on record

The latest annual statistics on benefit fraud and error from the Department for Work and Pensions, published today (May 11), showed that £670mn was underpaid last year, compared to £540mn in 2021-22.

Official error was the main cause of underpayments with failure to take action on changes to marital status or at age related trigger points the key reason.

The main types of underpayments within this category were:

• people who are married or in a civil partnership who reached state pension age before April 6, 2016 and may be automatically entitled to a state pension uplift based on their husband, wife or civil partner’s national insurance contributions; and
• people who have been widowed and their state pension was not uplifted to include amounts they are entitled to inherit from their late husband, wife or civil partner.

Incorrect recording of a claimant’s national insurance contributions was the second biggest reason for underpayments.

DWP also found that some state pensions were overpaid, with a total overpayment of £100mn in 2022-23. 

Many of these underpayments go back years and amount to thousands of poundsHelen Morrissey, Hargreaves Lansdown

Steve Webb, partner at consultants LCP said: “The continuing scale of state pension underpayment is truly shocking. Whilst it is right that there is a focus on fraud in the benefit system, DWP should be equally concerned where it is not paying people what they are entitled to. 

“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.”

State pension underpayments issue

The DWP is currently undergoing an exercise to correct historical errors that meant many people did not receive uplifts to which they were entitled.

The issue of state pension underpayments was first raised by Webb and LCP back in May 2020, and relates to entitlements for certain married people, widows and the over-80s dating back to 1992.

It largely affects women retiring under the old state pension system. Many did not receive the state pension they were entitled to under their husband’s national insurance record.

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. Before 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.

Subsequent DWP investigations uncovered systematic issues meaning tens of thousands of married, divorced and widowed people may have been affected.

The DWP began making repayments in January 2021. 

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “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.

“This issue was primarily caused by the complexity of the basic state pension system. The current system is much more straightforward, but it is important to get a state pension forecast to check that what is on record is correct.

"Incorrect recording of national insurance contributions is highlighted as another reason behind underpayments, so it is worth making sure that the data held for you is correct.”

A DWP spokesperson said: “Our priority is ensuring pensioners receive the financial support to which they are entitled, and state pension underpayment rates due to official error remain low at 0.5 per cent of expenditure.

"Where errors do occur, we are committed to fixing them as quickly as possible.”

amy.austin@ft.com