New cases of state pension underpayment uncovered

Some people claiming the new state pension who were already widowed when they retired may be being underpaid, according to the former pension secretary.

Since 2021, DWP has been undertaking a correction exercise designed to fix previous state pension errors relating to three groups including widows / widowers.  As of 31st March 2024, over £280m had been paid in arrears to around 23,000 widows / widowers who had wrongly missed out on inherited state pension from a late husband, wife or civil partner.  With the correction of historic errors for widows/widowers set to run to the end of 2024, DWP estimates that the total amount paid out could be more than double this figure, at around £650m to over 50,000 widows/widowers in total.

Former pensions minister Steve Webb says he has identified a new group of cases where DWP appears to be making errors.  These are people claiming the new state pension who were already widowed when they retired.  He has recently been contacted by four separate people who had not been awarded any inherited state pension when they retired and had been told in writing or over the phone by DWP that they were not entitled.  In all four cases, this was incorrect.  An increased amount of state pension has been put into payment and arrears have been paid.

According to pension consultants LCP, the group most affected are those who are widows or widowers at the point when they claim their new state pension and where either:

• The late spouse reached pension age before 6th April 2016 OR
• The late spouse died before 6th April 2016

In this case, the widow or widower can potentially inherit at least 50% of any ‘additional state pension’ which the late spouse built up, plus 50% of any ‘Graduated Retirement Benefit’.

The exact amount of inherited state pension  depends on individual circumstances, but will be greater if:

• The late spouse was an employee (rather than self-employed) AND
• The widow / widower is not receiving a widow’s pension from a company pension scheme (as this may replace part of any inherited state pension due).

More generally, the amount of inherited state pension anyone is due can depend on things like:

• Whether the claimant comes under the old or new state pension system
• Whether the late spouse came under the old or new state pension system
• When the late spouse died
• Whether the late spouse was a member of a ‘contracted out’ occupational pension scheme

Because the rules are complex,  LCP has developed an online tool to help people understand what state pension they are entitled to inherit on top of their own state pension.

The new tool can be found at: go.lcp.com/inheritingstatepension

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