You could be forgiven for thinking that this is “old news” and that you have heard it all before.
But, remarkably, this is another billion pounds of state pension errors on top of a different billion pounds of errors that the Department for Work and Pensions (DWP) has been working to put right since early 2021.
So, what on earth is going on?
This is a story about an old state pension system in which women have been second-class citizens. Whereas most men have a reasonably full life of paid work and get a full state pension, many women have a very different experience. Under rules designed in the 1940s, millions of women receive reduced pensions. This could be because of time spent raising children or because they paid a lower “married woman’s rate” of national insurance (NI) in anticipation of depending on a husband’s contributions to give them a pension in retirement.
Although such a system seems archaic, large numbers of people now in retirement spent their lives building up rights under precisely such a system. The problem is that the system has not worked as intended.
In particular, many women should have seen an increase in their state pension when their husband retired or when he died, but this never happened. Over half a billion pounds has been underpaid to widows, and nearly half a billion pounds to married women. And these problems were only unearthed when I, working in partnership with the website This is Money, brought case after case of errors to the DWP’s attention.
After some initial reluctance, the DWP eventually admitted systematic problems and has started a multi-year project to put things right.
In light of this, in 2022, for the first time in 15 years, the DWP started doing more detailed checks on state pension payments, including phoning people on low pensions to check what was going on. To their shock, the DWP started to realise that a whole group of people should have been getting national insurance “credits” for raising children but this was missing from their record. The Government now thinks around 210,000 people have been underpaid to the tune of £1.3bn.
To put this right, HMRC is commencing a letter-writing campaign to target those who may be missing out and encouraging them to claim their NI credits. The National Audit Office think the exercise may not be completed until 2027-28.
There are many lessons to be learned. A key one is that there needs to be a change in attitude at the DWP. Even this week, it was trying to play down the scale of the problem. This was a tin-eared response. The only proper reaction would have been a heartfelt apology to every individual who has missed out, and a real commitment to proper checks so that retirees can be confident that the amount they are being paid is actually correct.
Steve Webb is a partner at consultants LCP, and was pensions minister 2010-15