state pensions – what have we learned and what should happen next?

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Two months ago, LCP published a report entitled: “Are tens of thousands of older women being underpaid state pension?”. The response to that report has been enormous, with over 160,000 people visiting the LCP website calculator site, questions being raised in Parliament and several million pounds having already been refunded by DWP to women affected.

Today (Weds 5th August), LCP publishes a follow-up report which summarises what has been learned about the issue in the two months since the original report was published, and what needs to happen next. A key message of the paper is to encourage a much wider group of women to come forward to get their state pension checked.

The central issue is that under the old state pension system, married women could claim a basic state pension at 60% of the full rate based on their husband’s contributions where this would be bigger than the pension they could get based on their own contributions.

Since 17th March 2008, this uplift to 60% should have happened automatically, whilst before that date a married woman had to make a ‘second claim’ to have her state pension increased when her husband turned 65. The initial paper estimated that tens of thousands of ‘post March 2008’ women had not had their pension automatically increase and tens of thousands of ‘pre March 2008’ women had not put in a claim to have their pension increased and had therefore missed out for more than a decade.

Since the paper was published:

  • Dozens of women have notified us that they have received large lump sum repayments from DWP, with the average refund a little over £9,000, but some in excess of £30,000; based on cases notified directly to LCP or reported on the ‘This is Money’ website or to other publications, we estimate that DWP has already refunded several million pounds to hundreds of women;
  • DWP Ministers have urged those who think they are being underpaid to come forward, whilst the DWP press office says that the department is ‘undertaking a check of its records’ to find more cases; as this is a major and time-consuming undertaking, it is unlikely that any of the refunds to date arise from that exercise;
  • Written Parliamentary answers confirm:
    • Lump sum refunds of state pension received now are *not* taxed in the current year; instead they are treated as if the pension had been paid on time, which means many women will not have to pay any tax on their refund;
    • The heirs and successors of women who have been underpaid are entitled to receive any backdated pension refund;
    • Those who turn 80 should receive an £80.45 ‘category D’ pension automatically, provided that they satisfy a basic residence test and were already receiving some level of state pension before they turned 80;
  • Correspondence with the DWP has revealed that when men turned 65 they used to be sent two pension claim forms – one for them and one for their wife – rather than DWP sending the crucial claim form directly to the married woman herself;

Based on DWP replies, it seems clear that the Department’s ‘check’ of its records relates only to a search for ‘post March 2008’ married women. This would imply that no other group who are being underpaid will be proactively contacted by the Department. But the new LCP report identifies six groups who therefore need to contact the DWP to get their state pension reviewed. These are:

  • Married women whose husband turned 65 before 17th March 2008 and who have never claimed an uplift to the 60% rate (currently £80.45 per week in basic pension);
  • Widows whose pension was not increased when their husband died; they can potentially receive a 100% basic state pension of £134.25 per week plus a percentage of their late husband’s additional state pension; in some cases, widows have received six figure sums for underpaid state pension when errors have been detected; 
  • Widows whose pension is now correct, but who think they may have been underpaid while their late husband was still alive – especially if he reached 65 after 17th March 2008;
  • Over 80s who are receiving a basic pension of less than £80.45, provided they satisfied a basic residence test when they turned 80;
  • Widowers and heirs of married women, where the woman has now died but who was underpaid state pension during her life, especially where her husband turned 65 after 17th March 2008;
  • Divorced women, and particularly those who divorced post-retirement, to check that they are benefiting from the contributions of their ex husband; ONS estimates that the number of women over the age of 65 who divorce each year has risen by 38% between 2005 and 2015, so this is a rapidly growing group;

For married women who never knew they needed to make a claim for an uplift (pre March 2008 women), a growing number are planning to make a complaint of ‘maladministration’ to the Parliamentary Ombudsman. They will be arguing that DWP failed to ensure that they knew about the need to make a ‘second’ state pension claim when their husband turned 65. As a result of this they can now only get 12 months of backdating rather than 12 years or more of missed pension uplift.

Commenting, Steve Webb, partner at LCP said:

“It is good news that DWP is checking its records to find married women who have been underpaid. I have no doubt that in addition to the millions which have already been refunded, this process will result in tens of millions of pounds being paid over. But this record check must be comprehensive rather than narrow. As things stand, many groups of women, including widows, divorced women and the over 80s will not get a call from the DWP, so they will have to ring up and ask for their state pension to be checked if they think they are being underpaid.

“It would be far more efficient for DWP to do a comprehensive record check, including alerting women who still need to make a claim for an uplift. Without this, this issue will rumble on and on, and women will continue to miss out on the pension that is rightfully theirs”.

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