Mums shortchanged a shocking £1bn in state pension scandal

Older mothers are estimated to be missing out on £1 billion in state pensions due to gaps in their child benefit records, the government confirmed today.

HMRC will be launching a letter writing campaign this autumn to find people averaging £5,000 each in arrears.

About 143,000 parents, mainly between 60 and 70 years old, who applied for child benefit between 1978 and 2000 are said to have been affected.

Another 44,000 people who were underpaid would have died, meaning their beneficiaries would be eligible for payouts.

However, according to the Annual report of the Ministry of Work and Pensions published today, there is still a very large margin of uncertainty about what is owed – it could be anything between £300m and £1.5bn, although the central estimate is £1.043bn.

The latest blunder of the AOW is that until 2000 it was not mandatory to state BSN numbers on child benefit forms, which meant that the parents’ entitlement to AOW was missed from their records.

Today’s admissions by the government follow a separate discovery in 2020 that around 237,000 older women were underpaid, estimated to be around £1.5 billion in total.

Years of child benefit applied for with AOW calculations

Many women refused or underpaid state pension were tipped off by Webb’s campaign, Mothers Missing Millionsthat vital information related to child support claims was omitted from their National Insurance records.

This is Money dealt with a tragic case where a retired shop assistant was wrongly denied a state pension for two years and died just before this could be rectified, although the DWP eventually gave her surviving husband £12,500.

Last year, Webb, a former pensions minister, set up a website with a three-step guide to help moms train when they fell short.

He responded today: “The magnitude of these errors is enormous. It is shocking that so many women have been underpaid so much money.

“It is therefore essential that matters are put right quickly.”

Wendy Chamberlain, spokesperson for the Liberal Democrat Labor and Pensions, says it is ‘absolutely staggered’ to learn mistakes in HRP have led to pension losses of more than £1bn.

“I asked the government for an update on this on Tuesday and they were unable to give me an answer.

“This is just not good enough – pensioners need the government to step up their game and pay back what has been lost before more people sadly die without what is due to them.”

“It is an absolute failure of government responsibility to refuse to introduce an early warning system. This probably means that other schemes are already making mistakes that will cause increasing losses for pensioners under the watchful eye of the Conservatives.”

On a new web page, HMRC reveals today that because it was not required to include social security numbers on child support forms until May 2000, they were not always provided by claimants.

For data protection reasons, child benefit data is deleted five years after the application has ended.

Therefore, it is now impossible to identify anyone whose record erroneously lacks “protection of home responsibilities” – an entitlement that counts towards a state pension, and was replaced by the current system of annual NI points in 2010.

HMRC therefore searched NI files to find as many people as possible without HRP who were still entitled to it in the period 1978-2010.

It plans to write to people who meet these criteria to see if they qualify for a claim, which they can do online.

HMRC will then update their NI data and the DWP will recalculate their AOW and let them know if they are in arrears.

The Tax and Customs Administration says: ‘A change in income can affect the amount of tax someone pays or the allowances that someone is entitled to, including a pension discount. HMRC collects the income tax due on an increase in the state pension and on any arrears.’

It is currently unclear how HMRC will deal with people who have unnecessarily purchased state pension supplements.

Does YOUR state pension include the years in which you applied for child benefit?

HMRC says you don’t need to call the phone lines or the DWP about this and you can check for updates on this web page: Home Responsibilities Protection: correction of the national insurance data and the right to state pension.

It plans to contact people who may be affected in order of how close they are to state pension age from fall 2023, but those who already sign will be contacted first.

“HMRC may broaden the search criteria once initial contact has commenced,” it says. “Some of the people affected may have died now. Their families have the right to check their eligibility and file a claim for any arrears.”

And it adds: ‘HMRC and DWP will correct the national insurance administration and update the state pension entitlements as soon as possible.’

People may want to hold off on applying for missing state pension through the ‘online tool’ that HMRC plans to set up.

But you can now check for yourself via Steve Webb’s three-step guide whether you suspect that your years in which you applied for child benefit do not count towards your state pension.

It is hosted by pension consultancy LCP, of which Webb is a partner, but the company does not make any money from it.

Webb: ‘It is good news that the government is finally taking action to address even more errors in the state pension administration.

Missing out on protection for time at home with children can make a huge difference to a mother’s pension entitlement, and arrears commutations can run into many thousands of pounds for those affected.

“I hope this correction process is completed as soon as possible, because far too many people have been underpaid for far too long.”

Alice Guy, Head of Pensions and Savings at Interactive Investor: ‘It is tragic that this latest problem with the state pension has left many women in needless poverty.

“A stay-at-home mom for 16 years could lose a depressing £4,500 less in the state pension each year by missing out on vital National Insurance credits because of this mistake.

“These are life-changing sums and will have a huge impact on one’s well-being in retirement.

The state pension is critical, especially for many women who are less likely than men to have private retirement income and more likely to live in poverty when they retire.

“Unfortunately, this mistake could have left many affected women in poverty, with an income much lower than they were entitled to.”

Helen Morrissey, head of pension analysis at Hargreaves Lansdown, says: ‘The scale of state underpayments is staggering and has caused unnecessary financial hardship for many thousands of people.

‘People have the expectation that they will receive the right state pension at the right time and that is not the case for so many people.

“The identification of Home Responsibilities Protection plaintiffs as another affected group is disappointing.

“The DWP will begin contacting those potentially affected in the fall, but given the experience of other groups affected by underpayments, we know it’s going to be a long process and many people will have to wait a long time before they receive what they to owe.

“In the case of those affected by Home Responsibilities Protection, many records don’t even exist anymore and so the DWP faces a tedious process of sifting through National Insurance records to try and identify people. There is a good chance that many of those affected will be overlooked and will not receive what they are entitled to.’