Pension error is national scandal

Over 200,000 women were underpaid for decades Thousands of older women could be entitled to payouts of £13,500 after their state pensions were underpaid for more than two decades.

The blunder came to light in last month’s Budget, where documents revealed 200,000 married women who reached state pension age before April 6, 2016, were collectively owed up to £3billion.

Many pensioners can now look forward to an average payout of £13,500 but some will receive much more after getting a basic state pension of less than £1 a month – up to 80 times less than they should have received.

The mistake has been blamed on the extreme complexity of the state pension system.

It has been tweaked and reworked by many governments over time, making it nigh-on impossible to know how the details work for everyone. Until 2016, there were two parts to the state pension. The first was the Basic State Pension, which did not depend on having a salary but was based on qualifying credits. These were given for raising children, for example. But the second part is where things became complicated. It’s been called various things, including Graduated Retirement Benefit from 1961 to 1975, the State Earnings Related Pension Scheme (SERPS) from 1978 to 2002 and the Second State Pension (S2P) from 2002 to 2016.

In 2016, the two parts were merged to form the New State Pension, which is what we have today – but not before errors in payments owed to

‘‘ Some people received a basic state pension of less than £1 a week

women had stacked up. When the state pension was first set up following the Second World War, men were frequently the main or only income earners in a family. Women were responsible for childcare so did not work for many years and accrue much of a pension in their own right.

As a result, arrangements were made so married women who had a very low state pension in their own name could claim 60% of the basic state pension, based on their husband’s record of contributions.

This has happened automatically since March 2008 but before that date, women had to apply to receive it – and many had no idea it even existed. A review involving 100 civil servants is now taking place to trace the estimated 5,000 women who have been affected by this error, stretching back to 1992.

If you feel you could be entitled to an increase, either contact the Department for Work and Pensions or use the free tool from pension consultant Lane Clark & Peacock (LCP) to see if you qualify. Former pensions minister Steve Webb, now at LCP, has led the campaign to correct the missing backdated payments. For more pension and financial planning tips search for The Money Planner podcast.