As an adviser, you could easily be forgiven if the state pension was pretty low down your list of priorities. But an issue has arisen this year which I estimate will lead to older women receiving £100m or more in state pension repayments, as a result of past underpayments.
This offers a positive opportunity for you to help ensure that your clients, or in some cases the wives or mothers of your clients, are pointed in the right direction. A successful claim can result in a pension uplift and backpayments often running into thousands of pounds, and almost certainly good will for any adviser who has played a part!
The background to this issue is the rather old-fashioned roots of the National Insurance system. When the rules were designed after the second world war, the presumption was that married women would in most cases be financially dependent on their husbands, including in retirement.
As a result, special rules were created which allowed married women to claim a state pension by dint of the National Insurance Contributions of their husband, their ex-husband or (once widowed) their late husband.
Although these rules have largely been abolished for those reaching state pension age from 6 April 2016 onwards, most pensioners still come under the ‘old’ system and are potentially entitled. The key points are:
- A married woman can claim a basic state pension of roughly 60% of her husband’s basic state pension once they're both over state pension age; with a maximum basic state pension in 2020/21 of £134.25, married women can get £80.45 per week, regardless of their own contribution record
- A divorced woman who reaches state pension age can ask for the National Insurance (NI) record of her ex-husband to be used for the period up to their divorce instead of her own. A woman who divorces post pension age can ask for her ex-husband’s entire NI record to be used. In some cases, this substitution will take her up to a 100% basic state pension
- A widow should have her state pension reassessed once her husband dies; her basic state pension can be reassessed using his record, and she should also be able to inherit at least 50% of his additional state pension (often known as SERPS).
For most people, most of the time, these systems work. But analysis I did earlier this year off the back of a Freedom of Information request to the DWP, suggested that tens of thousands of women may be underpaid. Read the full report.
Key groups affected by this issue
A key group is married women whose husband turned 65 on or after 17 March 2008. After this date, her state pension should have been automatically increased to the 60% rate when he reached pension age, without any further action on her part.
But we've been contacted by dozens of women who were incorrectly on a lower rate because this uplift never happened. As well as getting their pension increased, many have had large backpayments, sometimes running to £10,000 or more.
A second group is married women also under the 60% rate, but whose husband turned 65 before 17 March 2008. Unfortunately, the law at the time was that such women had to make a ‘second claim’ when their husband turned 65. They can make a claim now and get an uplift, but this will only be backdated for 12 months.
For divorced women, we've found that there may be a particular issue for those who divorce post-retirement. For pre-retirement divorcees (who don't remarry), DWP should ask at retirement about any ex-husband and should make the necessary calculations. But where a divorce happens post-retirement, DWP may not know about it unless they're notified.
We estimate that around 100,000 women over pension age have divorced in the last 20 years and some may not have notified DWP – or may have phoned up, only to be told they're not entitled.
For widows, if for some reason their pension is not adjusted when their husband dies, the amounts they miss out on can be enormous. I have been involved in a handful of cases where the eventual backpayments ran into six figures when these longstanding errors were identified and corrected.
To help people navigate this complex area, LCP have produced a simple website calculator which was designed primarily for married women to check whether they might be eligible. This also includes a link to a separate page specifically for widows, which will enable them to check not only if they're on the correct rate today, but also if they were underpaid whilst their husband was still alive.
The main site, which has now had nearly a third of a million visits, can be found at www.lcp.uk.com/underpaid
I would encourage you to think about your clients and, where relevant, their female relatives, and explore with them whether they might be one of the thousands who are being underpaid. DWP has said that it will (eventually) check its own records to track people down, but until it starts that process, it's encouraging people to phone up if they think they're on the wrong amount.
Whilst I welcome DWP’s plans to use its records to find those who are missing out, I am concerned that this search may be limited just to the ‘post 2008’ married women mentioned above and may fail to pick up other married women, widows and divorcees who may also be underpaid.
I would welcome additional signatures on the petition I have tabled on the Parliament website which calls for a broad search of records to find all eligible women. But for now, advisers can really add value by identifying those who may be missing out and encouraging them to make a claim.
Find out more
If you have any queries about the rules, drop me a line at email@example.com.