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Government identifies almost £500m in underpaid state pensions

Government identifies almost £500m in underpaid state pensions
Emma Lunn
Written By:
Emma Lunn

New figures show that more than 82,323 retirees were underpaid after errors by the Department for Work and Pensions (DWP).

The DWP is currently carrying out a historic correction exercise. Between 11 January 2021 and 31 October 2023, the checking process identified underpayments, totalling £497m. These are worth just over £6,000 each on average.

The Office for Budget Responsibility has previously estimated the correction exercise could eventually cost the DWP almost £3bn.

Administration errors over decades by the DWP which led to people being underpaid their state pension have previously been labelled a “shameful shambles” by MPs.

The state pension underpayments relate to those who should have been entitled to uplifts under the pre-2016 system, but due to administrative errors did not receive them. These errors have been found to date back as far as 1985.

The main people likely to have been underpaid their state pension include:

  • ‘Category BL’ pensioners: Pensioners who are receiving a low basic state pension in their own right, but are entitled to increase it using their living spouse or civil partner’s contributions once their partner becomes entitled to state pension
  • ‘Widowed pensioners’: Widows and widowers who are not entitled to a full basic state pension based on their own contributions can inherit a basic state pension from their spouse or civil partner up to the full basic state pension rate;
  • ‘Category D’ pensioners: Men and women previously receiving no or low amounts of basic state pension, who may be able to increase their state pension from age 80

Tom Selby, head of retirement policy at AJ Bell, said: “While it is clearly good news the Government has identified almost £500m of state pension underpayments, this is still well below the near £3bn in total costs the DWP is expected to incur once the correction exercise has been completed.

“This saga is particularly tragic as many of the people affected will have been struggling unnecessarily for years. What’s more, the National Audit Office (NAO) has previously estimated around 40,000 of the people who were due a repayment had died without receiving it.

“It is absolutely critical all those affected by this scandal receive the money they are owed as quickly and efficiently as possible. With winter closing in and many retirees struggling to make ends meet as inflation eats away at their living standards, a cash windfall worth thousands of pounds could prove a lifeline after years surviving on an artificially low income due to the DWP’s errors.

“Once compensation has been paid, the government needs to undertake a comprehensive review of its processes to ensure these mistakes are never repeated. Trust in pensions is fragile at the best of times and failures such as this will not help. Sadly, it will likely take years, if not decades, to rebuild the confidence lost as a result of this scandal.”