POT LUCK
Savers could be missing out on ‘pension goldmine’ of up to £100,000 because of simple mistake – check if you’re affected
You need to act to get back money owed
BEREAVED families could be missing out on hundreds of thousands of pounds due to overlooking a crucial document.
The government has sent out letters to relatives warning it could have underpaid the state pension to their late parents or late spouse.
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However, unless the Department for Work and Pensions (DWP) receives a reply to the communication, the cash remains unclaimed.
The letters arrive out of the blue and it's thought many may not realise the importance of responding.
People could now be sitting on a "pensions goldmine" and have no idea, warned LCP partner and former pensions minister Sir Steve Webb.
At the end of July 2024, 1,859 people had received letters and not responded, according to a freedom of information reply received by the pensions expert.
Read more on the state pension
In the vast majority of these cases, the person who died was widowed and the DWP now believes they could have been underpaid state pension.
There are 1,671 letters to next of kin flagging the potential underpayments but there has been no response.
A further 131 relate to cases where a married woman’s low pension was not automatically increased when her husband retired, and 57 cases relate to underpaid pensions to the over 80s.
The DWP only work out the amount potentially owed when they receive a reply to the letter.
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However, in the past underpayments have ranged from a few pounds to over £100,000, according to Steve Webb.
If the DWP cannot trace a next of kin then any underpaid money is held on by the government.
How to track down lost pensions worth £1,000s
Steve Webb said: “We know that well over 100,000 people were underpaid state pensions and DWP has spent more than three years trying to track them down.
"In thousands of cases, the person who was underpaid is sadly no longer with us, but their heirs should still benefit from any underpayment.
"Although not all underpayments are large, in some cases people have received £100,000 or more, so the recipients of these letters could be sitting on a pensions goldmine.
"If you have received a letter from DWP about a potential underpayment to a loved one, I would urge you to respond as soon as possible”
A DWP spokesperson said: “This Government remains committed to ensuring that historical errors are corrected and our priority is ensuring pensioners get the financial support to which they are entitled.
“We will contact the individual to inform them of changes to their State Pension amount and any arrears they will receive. Where money is owed to a deceased customer, we will contact their next of kin or the executor.
“Delays may occur when not all the information we need is provided and we would encourage individuals to respond as soon as possible.”
What are state pension errors?
STEVE Webb, partner at LCP and former Pensions Minister, explains what state pension errors are and how they can occur:
The way state pensions are worked out is so complicated that many thousands of people have been paid the wrong amount for years without even realising it.
The amount of retirement pension you get usually depends on your National Insurance (NI) record.
One big source of errors has been cases where NI records have been incorrect, particularly for years spent at home with children.
This is a system known as ‘Home Responsibilities Protection’.
Alternatively, particularly for older pensioners, the amount you get can depend on the NI contributions made by your spouse.
Errors have arisen where the Government has failed to adjust the pensions of married women when their husbands retired or failed to increase pensions when someone was bereaved and lost a husband or wife.
Although the Government has spent years trying to fix these problems, there are still many thousands of people – many of them older women – on the wrong pension.
If you have always thought that your pension seems low, then it is worth contacting the Pensions Service to ask them to check, especially if you spent time at home raising children or if you were widowed and your pension didn’t change when your spouse died.
Why has the state pension been underpaid?
Thousands of people have been paid the wrong state pension amount for years without even realising it.
Major historic state pension underpayments were first revealed in 2022, and had seen an estimated 194,000 people miss out on money they're entitled to during retirement.
Most of these people were women who were stay-at-home mums.
Just £2.2million in arrears has so far been paid out compared with an estimated final bill of £1.15billion.
The DWP annual report suggests that out of the total number of pensioners missing out around 151,000 are still alive but 43,000 have died.
In a separate issue, some women have been given incorrect information by the DWP leading to them being shortchanged.
This impacts those claiming the new state pension who were already widowed when they retired, and
- The late spouse reached pension age before April 6, 2016
- Or, the late spouse died before April 6, 2016
In this case, the widow or widower can potentially inherit at least half of any "additional state pension" that the late spouse built up, plus half of any "Graduated Retirement Benefit".
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 at go.lcp.com/inheritingstatepension.
The DWP also has a tool to help those receiving the new state pension assess their eligibility for inherited state pension amounts at gov.uk/state-pension-through-partner.
How to boost your state pension
Those claiming the full flat rate state pension receive £221.20 a week, equal to £11, 501 a year.
The government currently guarantees the payment rises by the highest of average earnings, inflation or 2.5% through what’s known as the triple lock guarantee.
However, not everyone qualifies, it all depends on your National Insurance contributions.
You need at least 10 years’ worth of NI credits to get any state pension at all and 35 years to qualify for the full amount.
You can buy top ups if you find you don't have enough contributions for the full payout.
Buying one extra year of contributions would generally boost your pension pay out by £328.64 a year in retirement.
You can also get valuable state pension credits in place of NI contributions if you claim Child Benefit.
This means it’s important to claim in your name, rather than, for example, letting a working partner claim in theirs.
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In some cases deferring your state pension could be beneficial.
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