Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Pensioners who were widowed before they retired have been urged to check for errors calculating the amount of state pension they could inherit from their former spouse, with a former pensions minister warning that tens of thousands of people could be missing out.
Surviving spouses and civil partners can potentially inherit at least 50 per cent of certain state pension benefits after a partner dies. The complexity of pensions rules has already led to an estimated £650mn of historic state pension underpayments, which the Department for Work and Pensions (DWP) is currently in the process of correcting.
Sir Steve Webb, a former minister and now a partner with pensions consultancy LCP, says he has identified additional cases where the DWP still appears to be making errors relating to people claiming the new state pension who were already widowed when they retired.
Webb has recently been contacted by four separate people who had not been awarded any inherited state pension when they retired, and had been told in writing or over the phone by DWP that they were not entitled to any. In all four cases, this was incorrect. An increased amount of state pension has been put into payment and arrears have been paid.
However, Webb fears these cases “may well be the tip of an iceberg, with tens of thousands of people potentially underpaid”. He added that widows or widowers whose late spouses had either reached state pension age or died before April 6 2016 — when the new state pension was introduced — were particularly at risk.
Before this point, two different schemes were used to top-up basic state pension payments. Widows or widowers can potentially inherit at least 50 per cent of any additional state pension (also known as Serps) which their late spouse built up, plus at least 50 per cent of any graduated retirement benefit.
“If you assume this adds an extra £1,000 per year to the state pensions of those affected — which is probably quite a cautious assumption — this could equate to tens of millions of pounds of ongoing annual expenditure, and potentially many tens of millions in arrears depending how long the error has been going on,” Webb said.
The DWP said: “We want to ensure pensioners receive all the support to which they are entitled. Delays can occur to a customer’s state pension award when not all the information we need is provided. In these cases, we will make [an award] based on the customer’s own national insurance record until we have the required information. Once we have the necessary documentation, we will then revise the customer’s claim as soon as possible.”
Webb added that the exact amount that individuals affected could be entitled to would depend on their personal circumstances, but would be greater if the late spouse was an employee, rather than self-employed, and if the surviving spouse was not receiving a widow’s pension from a company pension scheme (as this may replace part of any inherited state pension that was due).
“What is striking about these cases is that in some cases, people have phoned up and been told on the phone that they are not entitled, but when we pursue the case it turns out that they are,” Webb added.
Because the rules are so complex, 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.
The new tool can be found at: go.lcp.com/inheritingstatepension
The DWP also has its own tool to help people assess their eligibility for inherited state pension amounts.
Are you a widow or widower who has been told you are not entitled to inherit part of your former partner’s state pension? Email the FT Money team via money@ft.com