The Department for Work and Pensions (DWP) has updated the public on the latest developments in rectifying State Pension underpayments.
Alarm was raised at the weekend by Sir Steve Webb, former pensions minister and current partner at LCP (Lane Clark and Peacock), over new potential errors in the State Pension system that may result in substantial annual underpayments for some individuals, potentially around £2,000.
Drawing attention to a particular concern, Sir Steve, who is also an ex-Lib Dem MP, suggested that individuals who were widowed and already retired when they started receiving the New State Pension might have been underpaid and could be owed back payments. Recognising the complexities of matters related to inheritance of State Pension, LCP has devised an online tool to help people check their eligibility with greater ease.
This proactive step comes after the success of another online calculator provided by LCP that helped married women probe for any State Pension shortfalls, which remarkably saw over a million site visits.
On this issue, Sir Steve told the Daily Record: “Having had to spend years checking hundreds of thousands of historic State Pension calculations for errors, you would hope that DWP would be making sure that new claims are handled correctly. But we have found worrying evidence that this is not the case.
“There seems to be a particular problem for people who are widows or widowers when they claim their State Pension. In some cases DWP seems to have failed to automatically add any inherited State Pension they were due from a late partner. These cases may well be the tip of an iceberg.”
Sir Steve added: “The Department needs to launch an urgent investigation into the scale of this problem.”
Who might be affected by the new underpayments?
In general, the new group appears to include those who are widows or widowers at the point when they claim their New State Pension and where either the spouse who has died reached pension age before April 6 2016 or where they died before April 6 2016, Sir Steve said.
The exact amount of inherited State Pension depends on individual circumstances, but could be higher if the late spouse was an employee, rather than self-employed and the widowed spouse is not receiving a widow’s pension from a company pension scheme (as this may replace part of any inherited State Pension due).
State Pension underpayments progress
Up to March 31, 2024, the DWP has paid arrears of £1.12 billion through the LEAP exercise and £2.2 million through the HRP corrections exercise.
The latest DWP figures show that between January 11, 2021 and March 31, 2024 some 99,558 people over State Pension age – mostly women – have received back payments averaging £2,196, £5,693 and £12,423, depending on their pension category as part of the LEAP exercise.
The Department for Work and Pensions (DWP) has confirmed that it has completed reviews of categories BL and D, which include married women, civil partners, widows, and those over 80. Corrections and backdated payments are expected to be made by the end of this year.
The total arrears due through the LEAP exercise is estimated at £970 million, affecting around 133,000 pensioners. The DWP has recognised a provision of £369 million, reflecting the outstanding amounts it still expects to repay.
Last year, it was estimated that the DWP underpaid £1.17 billion to 170,000 pensioners. However, the final total value of the underpayments will only be confirmed upon completion of the exercise.
The DWP estimates that around 194,000 people have been impacted by missing HRP State Pension arrears. Between January 8, 2024, and the end of March 2024, HMRC corrected records, leading to the identification of 274 underpayments.
Payments made during this period totalled around £2.2 million.
State Pension Underpayments – LEAP exercise
The State Pension LEAP is the DWP‘s largest underpayment correction exercise currently in progress. It aims to identify where State Pension underpayments may have occurred for certain groups of people.
- Category BL (Cat BL) – People who are married or in a civil partnership who reached State Pension age before April 6, 2016 and should be entitled to a Category BL uplift based on their partner’s National Insurance contributions.
- Missed conversions – People who have been widowed and their State Pension was not increased to include any amounts they are entitled to inherit from their late husband, wife or civil partner.
- Category D (Cat D) – People who reach age 80 and who are getting some Basic State Pension but less than the £85.00 (in 2022-23) and may therefore, subject to satisfying the appropriate residency conditions, be entitled to Cat D State Pension of £101.55 a week (2024/25 weekly rate).
State Pension underpayment progress – March 2024
Married (Cat BL)
- Cases reviewed: 318,693
- Underpayments identified: 43,825
- Average arrears payment: £5,693
- Total amount repaid: £245,535,772
Widowed (Cat B)
- Cases reviewed: 323,075
- Underpayments identified: 22,964
- Average arrears payment: £12,423
- Total amount repaid: £281,796,561
Over 80 (Cat D)
- Cases reviewed: 89,949
- Underpayments identified: 32,769
- Average arrears payment: £2,196
- Total amount repaid: £66,693,817
Home Responsibilities Protection
The Department for Work and Pensions (DWP) has estimated that it underpaid between £300 million and £1.5 billion of State Pension due to errors with the recording of Home Responsibilities Protection (HRP).
The issue, which affects mostly women in their 60s and 70s, was identified when HMRC began writing to thousands of older people in September 2023 who may have been underpaid their State Pension due to missing information on their National Insurance (NI) record.
HRP was a scheme designed to protect parents’ and carers’ entitlement to the State Pension and was replaced by NI credits from April 6, 2010. It is estimated that tens of thousands of people are due an average of £5,000 in back payments.
Personal representatives can claim on behalf of deceased customers.
Some individuals who have been on Universal Credit may find that their National Insurance Credits were not correctly attributed to their National Insurance record held by HMRC, potentially impacting their State Pension.
HMRC maintains National Insurance records based on information from employers through PAYE, Self-Assessment tax returns from the self-employed and data provided by DWP on benefit receipt where this results in a National Insurance credit.
From 2017-18 to 2022-23, details about Universal Credit entitlements could not be processed by the National Insurance Recording System. As National Insurance credits can influence the value of a State Pension award, there was a risk that some people who had claimed Universal Credit and subsequently reached State Pension age may have been underpaid.
During this time, the DWP implemented a manual system with HMRC to update an individual’s National Insurance record where they believed they qualified for National Insurance credits due to time spent on Universal Credit.
Now that the issues between the DWP and HMRC systems have been resolved, claims data relating to the affected years can now be successfully processed by HMRC. Once these records are updated, information will be sent to the DWP who will then correct any affected State Pension awards.
How to check if you are affected or make a claim
Nearly 12.7 million people across Great Britain, including over one million in Scotland, are currently claiming the State Pension. Of this total, 9.7 million are receiving the Basic State Pension and 2.9 million are on the New State Pension.
The Basic State Pension is valued at up to £169.50 per week, while the New State Pension can be worth up to £221.20.
To find out if you have been underpaid your State Pension, the quickest method is to call the Pension Service. The best number to dial is 0800 731 0469, with lines open from 8am to 6pm, Monday to Friday.
