New figures from DWP suggest that the total amount of state pension arrears to be paid out by the Government because of multiple errors is set to pass the £1 billion mark this year.
Following the government's plans to consolidate small pension pots, it has also published the latest update of how much has been underpaid in state pensions to date.
There are two separate correction exercises currently underway.
The initial correction exercise which started in January 2021 and is nearing conclusion relates to errors for:
- Married women on low state pensions, whose pension was not automatically uplifted when their husband retired;
- Widows whose state pension was not automatically reassessed when their husband died, with some widowers similarly affected;
- Over 80s with low state pension entitlements who were not automatically uplifted when they turned 80.
New figures show that the total arrears paid out as part of this exercise has gone past the £800m mark. 130,000 people were found to have been underpaid; of these, over 50,000 were widows/widowers, 47,000 married women and 34,000 over 80s.
A second correction exercise which only started in January 2024 relates to missing ‘Home Responsibilities Protection’ on the NI record of mothers who had children before the year 2000.
By September 2024, HMRC had issued over 370,000 letters to people who might have missed out and processed more than 42,000 applications for HRP, of which 19,000 had been passed to DWP to reassess state pensions.
DWP had processed around 11,700 of these, and found arrears in just over 5,000 cases. Total arrears paid were £42m, with an average of £7,859 per person.
Total arrears paid out by the end of March 2025 on the first exercise and by end September 2024 on the second now total £846m.
In addition to this, an earlier correction exercise on HRP resulted in arrears payments of £83m to 36,000 people, taking the total now paid to £929m. The number of people underpaid so far is 130,000 on the first major exercise described above, 5,000 on the new HRP exercise (as at last September) and 36,000 on the earlier correction exercise on HRP, totalling around 171,000 people, mostly women.
The amounts paid out under the current HRP exercise are expected to rise sharply as it gathers momentum, and another update to end March 2025 is expected shortly. As a result, it is highly likely that the total amount underpaid will rise from the current £929m to pass the £1 billion mark in the next year.
Steve Webb, LCP partner and former pensions minister, commented: “We have become so used to stories about state pension errors that it is easy to become dulled to the scale of what went wrong. It now looks as though the total amount underpaid will pass through the £1 billion mark this year with over 170,000 people having lost out. The vast majority of those who lost were women, some of whom were underpaid for decades or even went to their grave never paid the right state pension. The remaining corrections need to be handled as a matter of urgency. This should never be allowed to happen again.”
