The Department for Work and Pensions (DWP) has today published its annual report and accounts for 2022/23 which reveals the “shocking scale or errors” over historic state pension underpayments.

In fact, it estimates around £1bn is owed to 187,000 people, but tragically 43,000 have died and will never be compensated for the mistake.

However, there is a big margin of uncertainty, meaning it could owe anything between £300m and £1.5bn, with a range of 90,000 and 240,000 potentially affected cases as it is a “complex” exercise between HMRC and DWP.

HMRC will write to people who may fit the criteria for state pension underpayments, so if you do receive post from the DWP, make sure to claim what’s rightfully yours.

State pension scandal relates to Home Responsibilities Protection

Last year, the DWP discovered an error in the National Insurance records of some people, mostly affecting mothers.

It’s all to do with the Home Responsibilities Protection (HRP) missing from National Insurance records, meaning they have been underpaid their state pension.

HRP was a scheme available between 1978 and 2010 for people in receipt of child benefit, and those caring for sick and disabled people. It helped protect parents’ and carers’ entitlement to state pension before it was replaced by National Insurance credits in April 2010.

These credits are important as they dictate how much state pension you’ll receive in retirement.

But, for those who claimed child benefit before May 2000 and who didn’t provide their National Insurance number, it means their record won’t show the full picture of qualifying years of HRP.

The issue is most likely to now affect women in their 60s and 70s. Usually child benefit records would be the easiest way to identify people who have missing HRP but child benefit records are deleted five years after the claim ends for data protection, so it’s not possible for the DWP to identify everyone who may be missing HRP.

As such, HMRC is using National Insurance records to identify as many people as possible who:

• might have been entitled to HRP between 1978 and 2010
• have no HRP on their National Insurance record.

If someone first claimed child benefit after May 2000, they will not be affected as it became mandatory to provide a National Insurance number for child benefit claims.

HMRC will write to people who meet this criteria to find out if they’re eligible to claim. If they are, they will be able to claim online. Once the application is processed, HMRC will update their National Insurance record.

The DWP will then recalculate the state pension entitlement and whether they’re due any arrears.

And then it gets pinged back to HMRC as a change in income could affect the amount of tax someone pays, or the benefits they’re entitled to, including Pension Credit. HMRC will also collect any income tax due on an increase in state pension and on any arrears paid.

Mothers missing out on millions

According to calculations by Interactive Investor, if someone was claiming child benefit for 15 years and not working, they could be entitled to an additional 15 years of National Insurance contributions, potentially worth £4,543 additional state pension per year, or £96,914 over 20 years (not including inflation).

Alice Guy, head of pensions and savings, said: “As a society we’ve decided to support women who take time out to care for their family by counting these years towards their state pension. It’s therefore very sad that these women have been let down by the system and are now more likely to be facing poverty in old age.”

Steve Webb, former pensions minister and partner at pension consultancy Lane, Clark and Peacock, which has been campaigning on the issue, said: “The scale of these errors is huge. It is shocking that so many women have been underpaid so much money. This makes it essential that things are put right as a matter of urgency.”

Tom Selby, head of retirement policy at AJ Bell, said: “Given many people rely solely on their state pension to make ends meet in retirement, the fact even more have been identified as receiving too little – particularly during a cost-of-living crisis – as a result of administrative failures is unforgiveable.

“The most important thing now is that those who have been underpaid are identified as quickly as possible and put back in the position they should have been. Tragically, it is inevitable some will have died before they can receive the compensation they are owed.”

‘Underpayment rates remain low’

A Government spokesperson, said: “We have identified and are correcting an issue related to the historical recording of Home Responsibilities Protection on the National Insurance records for people who first claimed child benefit before May 2000.

“Most people’s records will be unaffected, and we will shortly be launching a new online tool to help people check whether they need to claim. HMRC will also begin writing to those likely to be affected from the autumn.

“Our priority is ensuring everyone receives the financial support to which they are entitled, and state pension underpayment rates due to official error remain low at 0.5% of expenditure. Where errors do occur, we are committed to fixing them as quickly as possible.”