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‘Shocking’ scale of state pension underpayments revealed

Emma Lunn
Written By:
Emma Lunn

Thousands of pensioners could be owed back payments from the Department for Work and Pensions (DWP).

Figures from the DWP show that the state pension underpayment rate is the highest on record at 0.6% (£670m) in the financial year 2022/23. This compares to 0.5% (£540m) the previous year.

The proportion of claims underpaid remained at six in 100 claims in both the financial years ending 2023 and 2022 which the DWP said includes historic errors.

The DWP also reported that some state pensions were overpaid, with a total overpayment of £100m in 2022/23. This means that underpayments were more than six times as large as overpayments.

Causes of underpayment

The main causes of underpayments were:

  • Historic errors, meaning that married women on a low pension did not get an automatic increase when their husband retired, or that married women did not get their pension reassessed when their husband died
  • Errors recording ‘credits’ for time at home with children (known previously as ‘Home Responsibilities Protection’)
  • Incorrect recording of a claimant’s National Insurance contributions

Women most affected

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “State pension underpayments hit a high with an eye-watering £670m underpaid in the financial year end of 2023. This perhaps comes as no surprise given the huge exercise the DWP is undergoing to correct historical errors that meant many people, did not receive uplifts to which they were entitled.”

The issue was primarily caused by the complexity of the basic state pension system. It mostly affected women retiring under the basic state pension system who were due uplifts in their pension when their husbands retired or died. Many of these underpayments go back years and amount to thousands of pounds.

The current system is much more straightforward, but it is important to get a state pension forecast to check that what is on your record is correct.

“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,” added Morrissey.

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.”

How will underpayments be fixed?

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

DWP reviewed an average of over 15,000 cases a month between November 2022 and February 2023, compared to an average of 5,000 per month over the first 22 months of the exercise.

If you think you may be affected by underpayments, there’s no need to contact the DWP as it confirmed it is already proactively correcting cases and contacting those impacted.