New figures show that six in every hundred state pension claims was being underpaid by the Department for Work and Pensions in 2024/25 – up from five in one hundred the previous year.
This is despite the completion of a massive four-year-long ‘correction’ exercise which has paid out over £800m in arrears to over 100,000 widows, married women and over 80s.
According to the figures, one of the main sources of underpayments is cases where parents – mostly mothers – are missing credits for time spent at home bringing up children. HMRC and DWP are currently in the middle of a large-scale correction exercise which involves contacting both pensioners and people of working age who may be missing ‘Home Responsibilities Protection’, in particular for Child Benefit claims made before the year 2000. Before this point it was not necessary to include an NI number on a Child Benefit claim and this meant that claims were not automatically linked to the NI contributions database to generate credits.
HMRC have already written to hundreds of thousands of pensioners to mention potential Home Responsibilities Protection, but the letter promoted online tools to check entitlement and to make a claim, which may have been offputting to older pensioners. New figures on progress with this exercise are due to be published next week.
Steve Webb, former pensions minister and partner at pension consultants LCP, said: “It is astonishing that six in every hundred state pensioners are being underpaid. In some cases these underpayments have been going on for years and could amount to thousands of pounds. When people have worked hard all of their lives, they have a right to expect that their pension will be paid at the correct rate. Given how complex the system is, it can be hard for people to know if they are getting the right amount or not, so it is all the more important that the Government gets it right.
"You would have hoped that all of the recent correction exercises would have resulted in a falling rate of errors, so it is all the more shocking to see underpayment rates increasing. DWP need to redouble their efforts to track down these errors and fix them as a matter of urgency.”
Jon Greer, head of retirement policy at Quilter, commented: "The latest figures shine a light on the sheer scale and complexity of the state pension system. While the overpayment rate for state pensions remains incredibly low at just 0.1%, that still equates to a staggering £190 million of taxpayers’ money being paid incorrectly. This serves as a reminder of the difficulty of administering a benefit that supports over 12 million people and costs £142 billion a year.
"What’s more concerning is the sharp rise in official error. Overpayments due to administrative mistakes by the DWP tripled in value from £20 million last year to £110 million, a statistically significant increase driven by miscalculations on the additional components of the state pension. These elements, which sit on top of the basic state pension, are prone to error and highlight how even small administrative slips can snowball when dealing with such large sums.
"On the flip side, underpayments remain a bigger issue than overpayments, with £450 million of state pension payments not reaching the people entitled to them. That includes many women who were impacted by historical issues with Home Responsibilities Protection, a now-defunct mechanism designed to protect the pensions of those with caring responsibilities. These legacy issues continue to plague the system despite a correction programme being in place.
"Meanwhile, the Pension Credit figures are more troubling still. Overpayments hit a record high of 10.3%, costing the taxpayer £610 million this year. Fraud accounted for nearly half of that, climbing to its highest level on record at £270 million. Given that Pension Credit is targeted at some of the most financially vulnerable pensioners, the system needs to strike a careful balance between accessibility and fraud prevention and it appears to be struggling on both fronts. A large share of overpayments stemmed from people failing to declare financial assets or staying overseas for longer than the rules permit, highlighting the difficulty of monitoring eligibility for a means-tested benefit with complex rules.
"Underpayments of Pension Credit, while lower in proportion, still amounted to £70 million, and nearly £7 in every £10 underpaid was due to administrative failings. These errors mostly relate to additional amounts for severe disability, which are often the lifeline for those on the lowest incomes.
"These figures underscore the importance of proactive communication from the DWP and HMRC, particularly for people with complex entitlements. Given how vital these benefits are in old age, there’s little room for error."
