State Pension underpayments hit record £670m

A whopping six out of every 100 claims were underpaid in the last year, official data reveals.

Retirees missed out on a record level of State Pension funds in the last year due to Government errors, new figures have revealed.

A total of £670 million was underpaid during the 2022/23 financial year ending in April, which represents an underpayment rate of 0.6%.

This is up sharply on the £540 million total (0.5% underpayment rate) from the previous 12 months, according to the Department for Work and Pensions (DWP).

At the other end of the scale, a total of £100 million was overpaid to claimants.

Why are claimants underpaid?

The main reason behind State Pension underpayments was deemed 'official error'.

Digging deeper, the most common cause was a failure to take action on changes to marital status or at age-related trigger points.

The second biggest cause was an incorrect recording of a claimant’s National Insurance Contributions, DWP revealed.

'Complex' pension system

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, described the underpayment figure as "eye-watering" but not unexpected. 

"[It] perhaps comes as no surprise given the huge exercise the DWP is undergoing to correct historical errors that meant many people, did not receive uplifts to which they were entitled," she explained.

"This primarily affected women retiring under the Basic State Pension system who were due uplifts in their pension when their husbands retired or died.

"Many of these underpayments go back years and amount to thousands of pounds.

"Government is making headway in making these repayments, but the scale of the problem is vast, and it will take time to complete but, in the meantime, many of these people have been under financial strain that they didn’t need to be.

"This issue was primarily caused by the complexity of the Basic State Pension system.

"The current system is much more straightforward, but it is important to get a state pension forecast to check that what is on record is correct.

"Incorrect recording of National Insurance contributions is highlighted as another reason behind underpayments, so it is worth making sure that the data held for you is correct.”