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Underpayments of State Pension

It is estimated that about 200,000 women could be owed on average £13,500 in back payments of State Pension.

Married women, plus widows, divorcees and the over 80s – whether married or not – could be due an underpayment and should check. This applies to those who hit state pension age before April 2016 ie come under the old system of state pension.

The Pension Service is checking the majority of affected cases and issuing backpayments automatically (which will take several months to complete). Some pensioners have already received arrears payments of thousands of pounds.

But many of those owed money will not get an automatic payment (nor automatic increase in their on-going pension where entitled) and will have to ask to have their case looked at.

Who could be missing out?

The following groups may have missed out – and these groups are being checked by the Pension Service:

  • People who are married or in a civil partnership who reached State Pension age before 6th April 2016 and were not getting / have not been getting State Pension equal to 60% of their partner's basic state pension. 
  • People who have been widowed and their State Pension was not uplifted to include amounts they are entitled to inherit from their late husband, wife or civil partner.
  • People age 80 or over who have not been paid Category D State Pension uplift.


The additional following groups (according to Lane Clark & Peacock LLP – the consultancy firm which first discovered and highlight these errors) may also have missed out – but these groups are not being checked by the Pension Service:

  • Married women whose husband turned 65 before 17th March 2008 and who are being paid less than 60% of their late husband’s basic state pension.
  • Women who divorced after pension age and who haven’t had their pension reassessed.


What if the claimant has died?

Any underpaid State Pension should be paid to their heir/s.
 

What if the claimant was getting a top-up of Pension Credit?

When working out how much someone is owed due to their State Pension having been underpaid, the Pension Service will need to check if the claimant received Pension Credit during the same period. They will need to re-calculate how much Pension Credit they should have received if the State Pension had been paid at the correct rate. So, we think that any arrears of underpaid State Pension would be reduced by any overpaid Pension Credit.


How will the arrears payments affect HB?

If arrears of underpaid State Pension are paid for a period during which the claimant received Housing Benefit, then in many cases, HB will have been overpaid. We do not yet know if there is any particular guidance for HB Offices on this matter.

We hope that all HB overpayments caused by underpayment of State Pension, due to DWP error would be deemed non-recoverable as they were caused by an official error and claimants could not reasonably have been expected to know they were being overpaid. 

However, anyone who receives a large lump sum arrears payment of State Pension could see their savings increase enough to take them off Housing Benefit. Arrears of State Pension are not included in the list of arrears of benefit payments which can be disregarded as savings, so they will be taken into account as capital from the day they are received.
NOTE: if a claimant's savings increase above the usual £16,000 HB capital limit but they have been and remain entitled to Guarantee Pension Credit, the their HB will be unaffected by the lump sum arrears payment.


What about Income Tax?

State Pension is taxable – so anyone receiving a large arrears payment will need to notify HMRC. They should also check that HMRC treat the payment correctly. As far as we are aware HMRC should not take the whole payment as income for the tax year in which it is paid but across all the tax years in which the pensioner was entitled to receive the uplift. And HMRC should only collect income tax for the current tax year and the four preceding tax years for arrears payments made due to DWP error. This means that any arrears of state pension relating to earlier years will not be subject to income tax.


More information available here:

gov.uk website

Lane, Clarke & Peacock website