Have you received the correct State Pension?

According to new estimates by the Department for Work and Pensions (DWP), around 237,000 individuals who reached State Pension age before April 2016 have received less than their entitlement due to an administrative error dating back to 1985.  The total underpayment is estimated at £1.46 billion.

Pensioners falling into the following categories will be automatically contacted by the DWP where any underpayment is identified and should take no further action:

• Women who were born before 6 April 1953 who received less than 60% of their husband’s basic State Pension, where their husband turned 65 after 17 March 2008
• Widowed pensioners who are not entitled to the full State Pension based on their own National Insurance contributions, but who may inherit part of their deceased spouse or civil partner’s State Pension up to the full basic rate
• People with low State Pension entitlement who did not receive an uplift from age 80.

Pensioners falling into the categories below will not be contacted automatically, and will need to contact the Pension Service to see if they can make a claim:

• Women who were born before 6 April 1953 who received less than 60% of their husband’s basic State Pension, where their husband turned 65 before 17 March 2008
• Divorced pensioners who may have been entitled to an increase in their State Pension based on their ex-spouse or civil partner’s National Insurance record, had they notified the DWP of the divorce.

The DWP have now begun to correct these underpayments by issuing lump sum payments to those who have been affected, which are potentially running into tens of thousands of pounds.

Fortunately, it has been recognised that it would be unfair to tax the full lump sum in the year of receipt as this may result in substantial tax liabilities, particularly in cases where the payment would push a taxpayer into the higher rate band when combined with their other income.

As a result, HMRC have agreed that the tax should be assessed as if the payments were made in the year that they were due, but only as far back as the 2017/2018 tax year. Any portion of the lump sum relating to an earlier year will not now be subject to tax.

HMRC should contact anyone receiving any back payments directly regarding the additional tax due, however in practice this does not always happen.

Pensioners in receipt of any back payments should therefore obtain a breakdown by tax year from the DWP by calling them on 0800 731 7898, or by post at the following address:

The Pension Service
15 Post Handling Site B
Wolverhampton
WV99 1AS

You will need to quote your name and National Insurance number regardless of which contact method you use.

Once you have obtained a breakdown by tax year, any additional tax due on the back payment can be calculated.

Please get in touch if you are affected by this and require any assistance.