The Department for Work and Pensions (DWP) has made a startling admission, revealing that approximately 210,000 retirees could be owed a staggering £1 billion due to a data error.
The mistake occurred because it was not mandatory to include National Insurance (NI) numbers on child benefit forms before May 2000, resulting in missed entitlements to state pension. Additionally, data protection laws require the deletion of Child Benefit information after five years, making it challenging for the government to identify those affected. The consequences of this oversight are significant and yet the government finds itself in the dark regarding which women are affected by this issue.
The impact on individuals who have been unemployed and claiming Child Benefit for extended periods of time is particularly severe. For instance, someone who has been claiming the benefit for 15 years may be entitled to an additional 15 years of NI contributions. These lost NI credits could translate to an extra £4,543 per year in state pension, totalling a staggering £68,145 over 15 years (without considering inflation). Disturbingly, it is estimated that approximately one in four underpaid individuals may have passed away before receiving the money they were entitled to.
The error was highlighted by Sir Steve Webb - Partner at LCP and former Minister for Pensions - and follows a new report published by the DWP in July, which revealed that this latest problem was the "second largest" source of underpayments in state pensions.
Sir Steve Webb expressed his shock at the scale of these errors. He stressed the importance of addressing the issue promptly, stating that "things need to be put right as a matter of urgency." Webb also highlighted the significant impact that missing out on protection for time spent at home with children can have on a mother's pension entitlement. Lump sum payments of arrears could potentially amount to thousands of pounds for those affected. He added, "far too many people have been underpaid for far too long," emphasising the need for swift corrective action.
To address this failure, HM Revenue & Customs (HMRC) will be writing to affected individuals, with a particular focus on older women, to determine if any information is missing from their NI records that could affect their state pension entitlement. Specifically, some individuals may find that their home responsibilities protection (HRP) is missing from their NI records. HRP was a scheme designed to safeguard parents' and carers' entitlement to the state pension and it was replaced by NI credits from 6th April 2010.
Starting in the autumn of 2023, HMRC will contact those affected in phases, prioritising individuals based on their proximity to state pension age. Those who have already reached state pension age will be contacted first. This comprehensive effort aims to ensure that the errors in people's state pension records are rectified and that the money owed is paid out. However, given the scale of the issue, the process may take some time to complete.
