Audrey and Brian Watson: Couple from Staffordshire sent a question to Steve Webb, sparking our investigation – read their story here
Elderly women could receive nearly £1.5billion in state pension arrears after being shortchanged for decades, the Government has admitted.
The scandal was uncovered by This is Money and former Pensions Minister Steve Webb, after we launched an investigation into a reader question to his weekly column in early 2020.
The huge bill results from a failure to increase some women’s payments when their husbands reached state pension age or died, or when they themselves reached the age of 80.
Many women are understandably asking if they lost out on thousands of pounds, and we explain how to find out and what to do below.
Who is affected by the blunder?
Married women who retired on small state pensions before April 2016 should get an uplift to 60 per cent of their husband’s basic state pension payments once he reaches retirement age too, but some have missed out.
Since 2008, the increases are supposed to be automatic, but before that women had to apply to get the full sum they were due.
Some widows can also inherit large sums in basic and second state pension from their late husbands, but this depends on their ages and the strength of their late spouse’s National Insurance record.
Over-80s who are resident in the UK should also be getting a ‘Category D’ pension of £80.45 a week.
The Department for Work and Pensions has confirmed that deceased women who were underpaid will have arrears paid to their estate, so it will go to their beneficiaries.
The above groups should be contacted by the DWP eventually as part of a ‘correction exercise’.
However, some divorced women may also have missed out, and women whose husbands reached state pension age before 17 March 2008, and they will need to make proactive claims to the DWP.
What was the error causing women to be underpaid state pension?
STEVE WEBB ANSWERS YOUR PENSION QUESTIONS
An estimated 237,000 elderly women have lost money over many years due to the DWP failing to make increases in their state pension.
This is being blamed on junior civil servants not manually updating records properly over several decades.
Many women who rang up to question why their state pensions were so low were fobbed off, sometimes repeatedly, by DWP staff over the years.
And the cases where problems were discovered and corrections made don’t appear to have rung alarm bells at the DWP, until This is Money began publishing stories about women receiving backpayments of thousands of pounds.
This prompted a rush of calls from women asking for their state pensions to be reviewed from early 2020 onwards. The DWP looked into the issue, and announced its ‘correction exercise’ to ensure women receive what they are owed.
The most recent £1.46billion arrears estimate given by the Government is vastly bigger than an original estimate of £100million by Webb, who is now a partner at pensions consultant LCP. He based that figure on a Freedom of Information request made to the DWP in early 2020.
However, the final figure is still uncertain and the DWP’s auditors have said it could be anything between £620million and £2.8billion.
How can you tell if you were underpaid state pension?
But Webb stresses that the LCP websites are simply designed as useful tools, and anyone with any doubt about the amount of pension they are receiving should contact the DWP.
If you prefer to write, you can input your postcode here to find an address. It is best to keep a copy of your letter, and if possible to send it by recorded delivery so you can prove when it was sent if necessary.
Under its ‘correction exercise’, the DWP will be contacting some women proactively, but this could take years.
In processing cases, it is prioritising widows, errors that are the longest standing, and recipients who are older to reduce the time these women have to wait.
Meanwhile, those who contact the DWP themselves to query their state pensions will continue to have them reviewed.
The DWP has confirmed that deceased women who were underpaid will have arrears paid to their estate, so it will go to their beneficiaries.
In this case, ideally the executor or administrator of a will, but also a beneficiary could contact the DWP. You can request information from the Government about whether a deceased persion was underpaid here.
Try to have the following information to hand if you phone, or include it in any letter.
Steve Webb: ‘ ‘Repayments of £3billion over the next five years imply huge numbers of women have been shortchanged’
Date of birth
Current basic state pension – this can be found on your latest annual statement, but if not give the total weekly or monthly amount
Date of birth (and date of death if this applies)
His current basic state pension, or last known before he died
Address, including postcode
What if you are only given a one-year backpayment?
While some women are getting full arrears from the DWP, others are only receiving a one-year backpayment and an increased state pension going forward – all depending on when they and their husbands were born.
As explained above, married women who retired on small state pensions before April 2016 should get an uplift to 60 per cent of their husband’s payments once he reaches retirement age too.
Since 17 March 2008, the increases are supposed to be automatic, so women with husbands retiring since then get a full backpayment.
But before that women had to make a claim to get the full sum they were due, so they get a much smaller payout.
The key date of birth for husbands is 17 March 1943.
The Government was meant to write to the couples affected before March 2008 and ask them to apply for an increase.
But all the women This is Money have spoken to who missed out are adamant neither they nor their husbands received such a letter, and insist they would have acted on it if they had done so.
Penny and Paul Loseby: She missed out on £16,000 over seven years, and was ignored or fobbed off on repeated occasions when trying to dispute her low payments, which were £40 a week by this year – read her story here
The DWP says that in cases where a one-year backpayment is due, it accepts the first letter or telephone communication from a customer querying their state pension entitlement as the valid date of claim.
It then determines the 12-month backdating arrears period based on this claim date.
In other words, this means women should not be left out of pocket for the subsequent time the DWP takes to process their claim.
But it would be sensible to keep a record of the first date you phone up or a copy of your initial letter so you can prove it if necessary.
There are four ‘loopholes’ that we know of where women with ‘pre-March 2008 cases’ might receive a bigger payout.
1. Date of birth: It depends on whether you reach state pension age before or after your husband, as well as his date of birth.
If your husband reached state pension age before 17 March 2008, and you did so after him – even if your state pension age also fell before that key date – you still get full arrears
This is because the DWP should have taken account of your husband’s state pension status, and automatically increased your state pension in line with it when you started receiving your payments too.
2. Deferment: If your husband deferred his state pension before 17 March 2008 and began taking it afterwards, you can receive a payout back to the date he ended the deferment.
If you have already received only a one-year backpayment, and your husband’s deferment was not taken into account, you should get back in touch with the DWP and ask for another review.
3. Complaint: Many women raised the issue of their low state pension with the DWP over the years. If it has a record of this, or you can prove it somehow, your payout could be backdated to this point.
4. Zero basic state pension: Around 5,000 women in the UK receive ‘graduated retirement benefit’, earned between 1961 and 1975, and translating to just over £1 a week in state pension today.
They receive zero basic state pension pension, because of a rule which required a 25 per cent contribution record before any was due.
As they never received basic state pension, they also didn’t claim on their husband’s record when he reached state pension age.
The women on tiny graduated-only payments are technically regarded as having ‘deferred’ their basic state pension, so they will get full arrears even if their husbands retired earlier than March 2008.
However, as with other married women affected by the scandal, those whose husbands retired before that key date have to proactively contact the DWP – even though they stand to lose a lot more.
Webb says lottery-sized payouts could be involved in such cases.
‘It is very important that women on these very small pensions make contact with the DWP as soon as possible to see if they could be entitled to a windfall,’ he says.
Can you appeal against a one-year backpayment?
Many elderly women who only received a one-year backpayment are battling with the Government for full arrears, but were recently dealt a bitter blow by the Parliamentary Ombudsman.
The complaints body has told women it will not intervene in the Government’s decision to only hand them a one-year payment.
They include Audrey Watson, whose husband Brian wrote to Steve Webb a year ago, sparking the investigation which has benefited many other women.
Webb had previously written to the Ombudsman asking it to look at whether the DWP was guilty of maladministration, and to find a way to put things right.
After it announced it would not step in, he said: ‘I will be making the strongest possible representations to the Ombudsman to think again about this decision.’
This is Money is supporting women in their campaign for full arrears, and we will report on any further developments.
You can still complain to the DWP and there are two ways to challenge it on this issue.
– Appeal: Argue that the law has been applied incorrectly; if the DWP rejects this, as it has in all cases we know of so far, you can ask for a ‘mandatory reconsideration’ of your complaint, followed by a tribunal.
– Complain about maladministration: This is about how the DWP ran the system; you should complain first to the DWP – give as much detail as possible, including that key documents were sent to husbands – then to an Independent Case Examiner, then to the Parliamentary Ombudsman.
In all cases, it is worth asking your MP to press your cause with the DWP as well.
If you go to the Parliamentary Ombudsman, your MP will have to sign your form as part of the process.
If you have already gone to the Ombudsman, and were recently informed of its decision not to intervene in backpayments, you can go back to your MP and ask for their support in getting the Ombudsman to reconsider.
We would like to hear from people who went to the Ombudsman and have been turned down. Please write to Steve Webb at email@example.com and put OMBUDSMAN in the subject line.
What if you believe a deceased parent was underpaid?
It is feared that many elderly women must have died while unwittingly owed vast sums by the Government.
We have received many enquiries from bereaved adult children about their late parents’ state pensions.
Two bereaved daughters have already received sums of £42,000 and £71,000 because their mothers were underpaid state pension for more than a decade before dying in their nineties. Read their stories here.
However, the DWP does not know how many pensioners have died while unwittingly being underpaid, as it normally destroys records four years after the death of a pensioner and their surviving spouse, according to a National Audit Office report into its failures.
Following pressure from campaigners and MPs, the Government has launched a website so next of kin of potentially underpaid state pensioners can request information.
What if you are divorced?
Some older divorced women may also be losing out, and we covered the case of a 77-year-old retired shopowner who received a shock £60,000 here.
Webb identifies two groups of divorced women who are most likely be missing out.
1. Women who were divorced at the point of retirement
‘Those who are divorced when they reach pension age can ask DWP to ‘substitute’ the NI record of their ex-husband up to the date of the divorce,’ he says.
‘Those who divorce later in life are therefore particularly likely to benefit as they can substitute their ex-husband’s record for a longer period of time.’
2. Women who divorced after retirement but have never notified the DWP
These women can have their basic state pension reassessed using their ex husband’s contributions, but they must notify DWP of their ‘change of circumstances’, says Webb.
State pension payments to divorced women do not affect the amounts received by their ex-husbands.
Should a husband have a worse National Insurance record than his ex-wife, he could claim a higher state pension on that basis too.
What about interest for the years you were underpaid?
The DWP has announced that it has ceased giving ‘special payments’ or interest to women paid incorrectly.
This is because the DWP now classes this as a ‘correction exercise’ – however, no money will be clawed back from those who have already received it.
The cut-off date is January 11 2021, so if you contacted the DWP before then you may still get interest on the money you were underpaid over the years, and it is worth asking if you do not.
Previously, This is Money understood the DWP was deciding interest payments based on whether a woman was underpaid for more than a year, whether it was down to government error and whether interest would amount to £10 plus. However, it never confirmed the criteria to us.
Will you have to pay income tax on any backpayment?
We have reported on many cases of women who are normally on too low an income to pay tax, but whose huge backpayments will push them into a higher income tax bracket in the tax year they receive it.
After the Labour Party asked the Treasury about this, it clarified that women will only be taxed as they would have been if paid state pension correctly at the right time, and only then in the current tax year and for the previous four years.
‘Income tax is calculated on arrears of state pension for the tax year in which the pensioner was entitled to receive it, and not in the year in which a lump sum is paid,’ it said.
‘Where arrears of state pension are paid, income tax will only be due on any income that exceeds the personal allowance for the respective tax year.
‘In addition, HM Revenue and Customs can only collect income tax for the current tax year and the four preceding tax years. Any arrears of state pension relating to earlier years will not be subject to income tax.’
If you receive a large sum and are uncertain how to report it to HMRC, it is worth asking a tax accountant to help sort out your return to ensure it is dealt with correctly.
This is Money’s tax expert Heather Rogers, founder and owner of Aston Accountancy, explains the process here, including how to deal with it yourself if you can’t afford an accountant.
What about inheritance tax, benefits and care fees?
Steve Webb explained the implications of payouts for benefits, care fees and inheritance tax here.
Accountant Heather Rogers explains what to do about inheritance tax if you receive a backpayment owed to a deceased relative here.
Specialist lawyer Ben Tyer gives his take on the possible impact on care funding where elderly women are currently receiving care or may need to in future, and the Department for Health and Social Care and the Local Government Association also offer responses here.
What does the DWP say?
A DWP spokesperson said: ‘We are fully committed to ensuring the historical errors that have been made by successive Governments are corrected.
‘We’re dedicating significant resource to doing so. Anyone impacted will be contacted by us to ensure they receive all that they are owed.
‘Since we became aware of this issue, we have introduced new quality control processes and improved training to help ensure this does not happen again.’
In addition to this statement, the DWP told us it was committed to delivering an excellent level of service, and it was continuously learning and improving from situations where errors happen.
It has reviewed its detection systems and the issues that contributed to the state pension underpayments in order to learn these lessons.
The DWP acknowledges that its work to correct women’s pensions is a significant undertaking that requires an assessment of hundreds of thousands of cases, including some that date back many years.
This work will include cases where an individual has passed away, and in this event arrears can be paid to the appropriate people.
Married women who are legally required to make a claim for an uplift in state pension because their husband started receiving his state pension before 17 March 2008 will not be covered in the ‘correction exercise’ and still need to make a claim.
Underpaid state pensions explained with Steve Webb
Yet more people caught up in the underpaid state pension have been unearthed – and tragically, in the two cases we highlighted most recently, they weren’t alive to see justice.
Two bereaved daughters received sums of £42,000 and £71,000 because their mothers were underpaid state pension for more than a decade before dying in their 90s.
The payouts are all thanks to the intrepid work of investment and pensions editor Tanya Jefferies and our pensions agony uncle Sir Steve Webb.
They join deputy editor Lee Boyce and Georgie Frost to talk about these latest cases, and what it means in terms of inheritance tax and care fees – could you, a family member or friend have been caught up in the scandal?
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