Pension Payout Problems: Retirees Miss Out on £470M Due to Errors

New data shows that a significant number of retirees in the UK have been underpaid a massive total of £470 million in State Pension funds during the financial year 2023/24. These underpayments, a result of government errors, have impacted approximately 4 out of every 100 pension claims.

According to the Department for Work and Pensions (DWP), the underpayment rate stood at 0.4%, indicating that a large number of pensioners did not receive the full amount they were entitled to. This underpayment has substantial financial implications for the affected retirees.

Key Reasons for Underpayment

The main culprit behind these underpayments has been identified as errors in recording claimants’ National Insurance Contributions. Specifically, issues were pinpointed with the historic recording of Home Responsibilities Protection (HRP). This scheme, which ran from 1978 to 2010, was designed to protect the State Pension entitlement of individuals with domestic caring responsibilities by reducing the number of qualifying years needed to receive a full Basic State Pension. Unfortunately, discrepancies in recording eligible years of HRP on National Insurance records have led to incomplete records, directly affecting pension entitlements.

Another significant cause of underpayment has been linked to administrative errors concerning changes in marital status and age-related adjustments. Particularly, widowed individuals did not receive pension increases they were entitled to inherit from their deceased spouses, resulting in financial shortfalls.

The Overpayment Issue

On the flip side, the DWP also reported overpayments totaling £170 million. However, this figure pales in comparison to the amount underpaid, highlighting a bigger issue with underpayments rather than overpayments.

Expert Advice: “It Pays to Check”

Helen Morrissey, a leading retirement analysis expert at Hargreaves Lansdown, emphasises the importance of individuals verifying their pension payments. The general assumption that State Pensions are automatically paid out at the correct rate is often incorrect. The substantial difference in the total amount of underpayments versus overpayments underscores the potential financial struggles faced by many due to these discrepancies.

Morrissey’s advice is clear: checking your pension entitlements and payments can prevent potential financial hardship. It’s crucial for retirees to ensure they are receiving the correct amount, as failing to do so can lead to significant financial distress.