Underpaid state pension: Did you or a late loved one lose out? Find out what to do below
In July 2023, I received a DWP letter regarding my Dad’s state pension. He passed away in 2020 aged 100.
The letter advises he was entitled to more pension than was paid for the period May 2000 to October 2020.
This would have been from the age of 80 to 100.
There was a representative declaration to complete which I did and I have since tried to call them to find out if he is eligible.
They are unable to advise as the section dealing with this do not take calls.
He did not receive a state pension due to not having paid enough NI contributions as a self-employed business owner.
He received a payment at the end of the year which was about £10. Are you able to help?
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Steve Webb replies: It must have come as a shock to you to get a letter from the Government telling you that your late father was underpaid state pension for the last 20 years of his life.
And it is very concerning that despite you responding to the letter nothing has happened since.
The background to the letter that you have received is the widespread set of errors in state pensions which This is Money and I unearthed.
The three groups affected by these errors include:
– Married women on a low state pension, whose husband drew his pension after 17 March 2008, and whose pension should have been automatically increased when he retired;
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– Widows, whose state pension was not reassessed when their husband died; some widowers were also affected;
– People on a low pension, whose pension should have been increased automatically to the standard over-80s rate when they turned 80;
Since early 2021, DWP have been employing hundreds of civil servants to go through hundreds of thousands of records to check for errors and to pay arrears – this is known as the Legal Entitlement and Administrative Practice or LEAP exercise.
The latest official figures on state pension underpayment cases reviewed to 31 October 2023 show that by then they had paid out just under half a billion pounds to more than 80,000 people.
DWP say that by the end of 2023 they had finished checking for errors on married women and the over-80s and will spend the rest of 2024 resolving errors relating to widows and widowers.
Given that DWP regards errors for the over-80s as now resolved, it was a surprise to get your message and to hear that you had still not had the relevant payment from DWP for your late father.
In case this is relevant to anyone else, the specific error we are talking about here relates to something called the Category D state pension.
This is payable at a rate of roughly 60 per cent of the full basic state pension for those aged 80 or over. The current rate is £93.60 per week.
The unusual feature of the Category D pension is that it is payable regardless of your record of National Insurance contributions.
This is why someone such as your late father, whose NI record may have been patchy because of his time running a small business, would still be entitled.
This is Money contacted DWP on your behalf and they confirmed that your father was indeed underpaid for 20 years, and have issued you with an arrears payment of a little under £8,000.
They have also apologised for the delay.
Eagle-eyed readers may look at this arrears figure and wonder why it is not larger given that the underpayment went on for two decades.
The reason for this is that you have told me that your parents were receiving pension credit to top up their income.
If the correct state pension had been paid on time then their pension credit payment would have been lower.
So DWP offset the underpaid state pension against what now turns out to have been overpaid pension credit and pay you the difference.
Logically people underpaid state pension or their beneficiaries should get interest. But DWP took the decision right at the start of the LEAP exercise that they would not pay interest, and say they have precedent for this.
I suspect their view is that it’s enough of a job to check hundreds of thousands of records, calculate redress and make all the payments, without then having to do complex interest calculations on top which would slow the whole thing down.
I imagine if someone challenged this in court they might well win, but the amounts involved at standard government interest rates would probably be small relative to the cost of doing so.
Your experience does make me wonder how many more people there are who may have been contacted about errors – perhaps especially relating to a loved one who has since died – but have heard no more.
If you are in this position do please get in touch as we want to make sure that as many people as possible get the money that they are owed. Details of how to write to are in the box above.
Do you have to pay tax on a payment of state pension arrears?
The lump sum is a payment of state pension, and state pensions count as taxable income, so there may be income tax due.
But the good news is that you are not taxed as if you had received the money this year all in one big lump.
The way the tax bill is worked out is that the lump sum is broken down into a year-by-year amount.
You are then taxed as if you had received the correct payment each year. However, no tax is due for periods more than four complete tax years back.
In practice, for someone who was on a very low income, and who would not have been drawn into the tax net even if they had received their correct pension, then there will be no tax bill.
Where a payment is made to the estate of someone who has died there could in a minority of cases also be an issue around inheritance tax.
This point is covered by my colleague Heather Rogers at This is Money in her article here: What are the tax rules if you inherit a state pension backpayment?
