DWP says my dad who died at 100 was underpaid state pension for 20 years: Steve Webb replies

In July 2023 I received a letter from the DWP regarding my father’s state pension. He passed away in 2020 at the age of 100.

The letter informs that he was entitled to a pension higher than what he paid during the period between May 2000 and October 2020.

This would have been between 80 and 100 years old.

You had to fill out a proxy statement, which I did and have since tried to call them to find out if you are eligible.

They cannot advise us since the section that deals with this does not answer calls.

He did not receive any state pension because he had not paid enough NI contributions as a self-employed business owner.

He received a payment at the end of the year of around £10. Are you able to help?

SCROLL DOWN TO FIND OUT HOW TO ASK STEVE HIS PENSION QUESTION

Steve Webb responds: It must have been a shock for you to receive a letter from the government informing you that your late father received an insufficient state pension for the last 20 years of his life.

And it is very worrying that, despite you responding to the letter, nothing has happened since.

The background to the letter you have received is the wide-ranging series of state pension errors that This is Money and I have unearthed.

The three groups affected by these errors include:

– Married women receiving a reduced state pension, whose husband received his pension after March 17, 2008 and whose pension should have been automatically increased when he retired;

– widows, whose state pension was not reassessed when their husband died; some widowers were also affected;

– People with a low pension, whose pension should have been automatically increased to the standard rate for over-80s when they turned 80;

Since the beginning of 2021, DWP has been employing hundreds of civil servants to review hundreds of thousands of records to check for errors and pay arrears; This is known as the exercise of Legal Rights and Administrative Practice or LEAP.

The latest official figures on State pension underpayment cases reviewed until October 31, 2023 show that until then they had paid just under 500 million pounds to more than 80,000 people.

DWP says that by the end of 2023 they had finished checking for errors in married women and over 80s and will spend the rest of 2024 resolving errors relating to widows and widowers.

As DWP considers over-80s errors now resolved, it was a surprise to receive his message and learn that he had not yet received the relevant payment from DWP for his late father.

In case this is relevant to anyone else, the specific error we’re talking about here relates to something called a Category D state pension.

This is paid at a rate of approximately 60 per cent of the full basic state pension for people aged 80 or over. The current rate is £93.60 per week.

The unusual feature of the category D pension is that it is paid regardless of your National Insurance contribution history.

This is why someone like your late father, whose NI record may have been spotty due to his time running a small business, would still be eligible.

This is Money contacted DWP on his behalf and they confirmed that his father had indeed been underpaid for 20 years and had been issued a back payment of just under £8,000.

They have also apologized for the delay.

Eagle-eyed readers may look at this arrears figure and wonder why it isn’t higher, given that the underpayments went on for two decades.

The reason is that you told me that your parents received a pension credit to supplement their income.

If the correct state pension had been paid on time, the pension credit payment would have been less.

So the DWP offsets the underpaid state pension with what now turns out to be an overpaid pension credit and pays you the difference.

Logically, people who pay an insufficient state pension or their beneficiaries should receive interest. But the DWP made the decision, right at the start of the LEAP exercise, not to pay interest and says it has precedent for this.

I suspect your view is that it’s enough work to check hundreds of thousands of records, calculate compensation, and make all payments, without having to do complex interest calculations on top of that, which would slow down the whole process.

I imagine that if someone challenged this in court they might well win, but the amounts involved at standard government interest rates would probably be small relative to the cost of doing so.

Your experience makes me wonder how many more people may have been contacted in error (perhaps especially regarding a loved one who has since passed away) but have not heard back.

If you are in this position, please contact us as we want to ensure that as many people as possible get the money they are owed. Details on how to write are in the box above.

Do I have to pay taxes on the payment of state pension arrears?

The lump sum is a state pension payment, and state pensions count as taxable income, so income tax may be due.

But the good news is that you don’t pay taxes as if you had received the money this year all at once.

The way the tax bill is calculated is that the lump sum is broken down into an amount year by year.

You are then taxed as if you had received the correct payment each year. However, no taxes are due for periods prior to four full tax years.

In practice, for someone who was on a very low income and who would not have fallen into the tax net even if they had received their correct pension, then there will be no tax bill.

When a payment is made to the estate of someone who has died there, in a minority of cases there may also be an inheritance tax issue.

This point is covered by my colleague Heather Rogers from This is Money in her article here: What are the tax rules if you inherit a state pension arrears?

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