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Underpaid state pensions - where are we up to?
Author Steve Webb Posted on July 14, 2021 18:50
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Anyone who follows me on social media will know that for the last year or so I have been obsessed with one issue in particular - a suspicion that thousands of women were being underpaid state pension. The issue was first triggered by a reader who wrote in to my column for 'This is Money' and the more we looked into it, the bigger the problem seemed to be. Finally, in the March 2021 Budget, the Office for Budget Responsibility (OBR) published figures showing that nearly 200,000 women were owed nearly £3bn in underpaid pensions, though DWP continues to be secretive about the whole thing. So what happens next?


There are three groups of women who, in principle, can simply sit and wait for the cheque. These are those where the DWP admits that there was a legal entitlement to a higher pension that was never paid. This includes married women (due a 'Category BL' married woman's pension) who never got an uplift when their husband retired, widows (whose pension was not 'converted' to the widows rate when their husband died), and over 80s - mainly women but also some men - whose pension was never increased when they reached 80. We understand that DWP is employing more than 500 civil servants to process hundreds of thousands of individual cases. The OBR originally expected this process to last more than five years, but DWP is hoping to get this work done in about half that time. Payments will also go to the 'estates' of those who were underpaid but are no longer with us.


But there are other groups of women who are being underpaid and who DWP is not looking for. One is post-retirement divorcees who, provided they come under the old state pension system, can get an uplift based on an ex-husband's contributions, but only if they report the divorce to DWP. Another is people on zero state pension who have never claimed and may not realise they are entitled. The over 80s, who can get a non-contributory 'Category D' pension based on residence only appear to be particularly affected.


But a key group is married women whose husband turned 65 before 17th March 2008. Before that date, the DWP says that such women could only get an uplift when their husband retired if they made a claim - even if they were already on a pension in their own right. A number of these women have complained via the Parliamentary Ombudsman that DWP is guilty of 'maladministration' for failing to make them aware of this fact, and we are currently awaiting a final decision from the Ombudsman as to whether he will investigate or not.


My main reflection on all of this is just how complex the old pension system was. The very fact that nearly 200,000 women can have been on the wrong rate - in some cases for decades - without having any idea, shows why simplification was urgently needed in 2016. Over time most people who retire in future will get the new standard flat rate and the chance of scandals like this one should be reduced. But until then, anyone on the old state pension system should be checking what they are getting to make sure they understand what they are getting and why.


More information and a tool for married women to check can be found at www.lcp.uk.com/underpaid