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12 Nov 2020

New unit to pay women back £100m in underpaid state pensions: are you owed money?

The Department for Work and Pensions has formed a new unit to process claims

Tens of thousands of married, divorced and widowed women are to be paid back more than £100m in underpaid state pensions by the Department for Work and Pensions (DWP).

It follows new evidence given to MPs by DWP permanent secretary Peter Schofield, based on findings from pensions consultancy Lane, Clark & Peacock (LCP) in May.

LCP had revealed tens of thousands of women were being underpaid their state pension, which has been caused by a combination of complex rules about women's entitlement under the old pension system and computer errors made by the DWP.

A special unit has now been set up by the government, currently staffed by 37 civil servants with more due to be added, to process claims.

Here, Which? looks at the evidence in more detail, explains how you can find out if your state pension is being underpaid and how you can claim.

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What does the new evidence suggest?

The new evidence - presented to the Work and Pensions Select Committee - has confirmed that around 11,000 people have been in touch with the government on this issue and 7,200 claims have been processed.

Most women who contacted the DWP about their state pension were on the correct rate, but 1,900 - or nearly one in four - were confirmed to be receiving too little.

It's estimated that if the rate of successful claims remains at this level, almost 3,000 people who have contacted the DWP should be owed money.

At the hearing, Schofield noted that the work to check records is still ongoing.

A final bill of £100m

When asked by MPs if the total sum owed could reach £100m Schofield noted 'it could be a yes'.

LCP estimates that the average lump-sum back payment to date has been just under £10,000, which suggests the government may have paid out £25m to £30m to those who have contacted the DWP so far. Based on LCPs data, this implies a bill in excess of £100m is likely.

LCP partner Sir Steve Webb - who has been leading the research - has tabled a parliamentary petition calling on the DWP to use its records to track down all of the groups of women who are being underpaid.

The petition has reached more than 10,000 signatures, meaning the DWP has to give a formal response.

A DWP spokesperson told Which?: 'We are aware of a number of cases where individuals have been underpaid State Pension. We corrected our records and reimbursed those affected as soon as errors were identified.

'We are checking for further cases, and if any are found awards will also be reviewed and any arrears paid.'

Who could be eligible to claim missing state pensions?

The issue affects women who were married and reached state pension age (SPA) before April 2016, who can claim the basic state pension.

These women are entitled to 60% of the basic state pension their husband gets at SPA. For 2020-21, the full basic state pension is £134.25 per week and the rate for married women claiming on this basis would be £80.45 per week. Under this old system, each member of a couple could build up a pension in their own right.

So, in principle, each member of a married couple could earn a full state pension. But many women had gaps in their National Insurance (NI) record or had paid the specially reduced 'married woman's stamp', and so reached pension age with very limited pension entitlement of their own.

The women affected will have been born before 6 April 1953 and are most likely to be widows, married or divorced women, and those aged over 80.

If you're a widow, you could also substitute your late husband's NI record for your own, thereby qualifying for 100% of the basic state pension if your late husband had a full record of contributions.

If you were divorced when you reached SPA, you could substitute your ex-husband's NI record for your own, up to the point of your legal split. If the divorce occurred relatively late in life, this could enable you to qualify for a full basic state pension.

Why have some women been underpaid?

There are two groups of married women who may have been underpaid state pension benefits.

Until March 2008, a married, divorced or widowed woman would have had to make a claim to receive an enhanced pension.

For women whose husbands reached SPA (which was then 65 for men) after March 2008, the DWP's computer systems should have boosted their state pension payments to the 60% sum.

But many women have said that it didn't and have complained to the DWP.

The second group of women who have been affected are those whose husbands reached 65 before March 2008.

According to LCP, the DWP claims it wrote to these women to alert them of this option, but many say they never received such a letter.

Six groups of women that should take action now

Six groups of women have been identified by LCP who may want to contact the DWP to get their state pension payments reviewed:

  • Married women whose husband turned 65 before 17 March 2008 If you never claimed an uplift to the 60% rate (currently £80.45 per week in basic pension), you could be missing out.
  • Widows whose pension was not increased when their husband died This group can potentially receive a 100% basic state pension of £134.25 per week, plus a percentage of their late husband's additional state pension.
  • Widows whose pension is now correct, but who think they may have been underpaid while their late husband was still aliveThis is especially important if your late husband reached 65 after 17 March 2008.
  • Over-80s Who are receiving a basic pension of less than £80.45, provided that they satisfied a basic residence test when they turned 80.
  • Widowers and heirs of married women Where the woman has now died but who was underpaid state pension during her life, especially where her husband turned 65 after 17 March 2008.
  • Divorced women (particularly those who divorced post retirement) You should check you are benefiting from the contributions of your ex-husband.

How can I check if I'm eligible to claim?

LCP has created a calculator to help you identify if you may be affected.

You'll need to enter some details about you and your husband (or husband at the time), including when you were born, whether your husband is over the SPA, how much basic state pension you currently receive and how much your husband (or ex-husband) receives.

You'll then be given an indication of whether you're receiving less than you're entitled to. LCP says all data is given anonymously and it doesn't store any of the personal data you input.

If you have any concerns or questions about your pension you should contact the government's Pension Service.