Thousands of pensioners may be affected, a former pensions minister has warned (Image: GETTY)
Thousands of widows and widowers could be entitled to more money because of new errors found in state pension calculations, a former pensions minister has warned.
Sir Steve Webb said the cases identified so far could be “the tip of an iceberg” amid “worrying evidence” that the Department for Work and Pensions (DWP) is underpaying new pension claims.
The department is under fire following a catalog of historic state pension errors and underpayments.
Millions of Waspi women were forced to work longer when their state pension age increased, first to 65 to equalize it with men, then to 66.
Dennis Reed, director of the Silver Voices campaign group for older people, said that Sir Steve's findings were “just the latest in a litany of blunders by the DWP costing hard-up pensioners billions in reduced pensions”.
The people affected by the newest issue are believed to be those claiming the new state pension who were already widowed when they retired.
In two cases, the underpayment amounted to over £2,000 a year, which could potentially add up to a £40,000 shortfall over a typical retirement.
Sir Steve, a partner at pension consultants Lane Clark & Peacock (LCP), said: “Having had to spend years checking hundreds of thousands of historic state pension calculations for errors, you would hope that DWP would be making sure that new claims are handled. correctly. But we have found worrying evidence that this is not the case.
“There seems to be a particular problem for people who are widows or widowers when they claim their state pension. In some cases DWP seems to have failed to automatically add any inherited state pension they were due from a late partner.
“These cases may well be the tip of an iceberg, with many thousands of people potentially underpaid. The department needs to launch an urgent investigation into the scale of this problem.”
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Sir Steve has been contacted by four people who had not been awarded any inherited state pension when they retired and were told by the DWP they were not entitled to it.
But this was found to be incorrect in all the cases and an increased amount of state pension has been put into payment and arrears have been paid.
The key features of the group affected are that they were widows or widowers at the point they claimed their new state pension and their late spouse either reached pension age or died before April 6 2016.
In such cases, the widow or widower can potentially inherit at least half of any Additional State Pension the late spouse built up, plus 50% of any Graduated Retirement Benefit.
The exact amount of inherited state pension will depend on individual circumstances.
But it will be more if the late spouse was an employee, rather than self-employed, and if the widow or widower is not receiving a widow's pension from a company pension scheme.
More generally, the amount of inherited state pension anyone is due can depend on factors including whether the claimant and late spouse come under the old or new state pension system and when the late spouse died.
LCP has now developed an online tool to help people understand what state pension they are entitled to inherit on top of their own state pension.
Sir Steve said: “I hope that our new online tool will help people to check what they are entitled to and to report any errors.”
The DWP is also grappling with the row over Waspi women after a report said some women affected by a decision to increase the state pension age should get compensation.
Some women affected by a decision to increase the state pension age should get compensation, a long-awaited report in March said.
The Parliamentary and Health Ombudsman ruled the government failed to adequately inform women born in the 1950s about the impact of changes.
The modern state pension was introduced in 1948.
For 60 years, men who had made enough National Insurance (NI) contributions received their state pension at 65 and women at 60.
But many argued the difference was unfair because women tend to live longer than men.
Under the 1995 Pensions Act, a timetable was drawn up to make the age at which men and women start getting state pensions the same.
This meant the state pension age for women would gradually increase to 65, between 2010 and 2020.
However, in 2010, the coalition government decided to accelerate the timetable, to reduce the overall cost of the state pension.
Under the 2011 Pensions Act the new qualifying age of 65 for women was brought forward to 2018.
The qualifying age for both men and women increased to 66 in October 2020.
This is set to rise to 67 between 2026 and 2028, and to 68 between 2044 and 2046.
The Women Against State Pension Inequality (Waspi) group had lobbied the government and held protests about the pension issue for many years.
The group estimates that at least 270,000 affected women have died during its campaign.
It wanted women to be compensated over the government's failure to tell them – or provide adequate notice – about the changes.
About 2.6 million women were affected by the 2011 changes.
The Ombudsman recommended compensation payments of between £1,000 and £2,950.
Mr Reed said: “The worst case of course is that of the 1950s women, where it appears that the DWP is still dragging its feet on just compensation.
“Instead of finding weird ways to monitor the bank accounts of pensioners and benefit claimants, the DWP should get its own house in order first.”
And there has been a backlash over Chancellor Rachel Reeves's decision to strip almost 10 million pensioners of winter fuel payments, which she has blamed on the state of Britain's public finances.
Meanwhile Britain's “forgotten” war widows celebrated a long-awaited victory in 2023 when the government agreed not to tax one-off compensation payments of £87,500.
The Daily Express had campaigned against pension injustice which saw women or men who lost their spouses in the line of duty stripped of their war widow's pensions if they remarried or cohabited with someone else.
Baroness Altmann, a former pensions minister who now sits in the House of Lords, said: “This is the latest example of systematic calculation errors relating to State Pension payments.
“The rules are so ludicrously complicated that there will always be exceptions that fall through the cracks, which a computer is not programmed to deal with – maybe the people devising the program hadn't realized or hadn't thought of these cases.
“People rely on and trust that their State Pension will be paid correctly. It's so complicated that most people have no hope of calculating it themselves.
“But it's clear the DWP itself is unable to be sure that it is paying the right amount to people and sometimes gives them wrong information.
“Then, if someone challenges their amount, it usually first denies it made a mistake but subsequent investigations have shown systematic errors.
“Time and again we're finding that there are these groups that just are getting incorrect payments. It's not deliberate, it's a function of the complexity.
“But at a time when the government is also taking away the winter fuel payments with no warning and no notice, it's just another example of how difficult it is to navigate around our state pension system with all its add-on bits and take-aways. bits and means-testing bits.
“I'm delighted that Steve Webb/LCP is on the case. Too often, widows' entitlements are wrong, often due to historical rules changes, which are carried through to the new system to protect the old rules, but today's officials are not aware of all the changes. Sometimes, nobody knows what's what.”
A DWP spokesperson said: “We want to ensure pensioners receive all the support to which they are entitled and have a tool to help them understand what state pension they can inherit.
“Delays can occur to a customer's state pension award when not all the information we need is provided.
“In these cases, we will make a state pension award based on the customer's own National Insurance record until we have the required information.
“Once we have the necessary documentation, we will then revise the customer's claim as soon as possible.”
-LCP's new tool can be found at go.lcp.com/inheritingstatepension.