Govt facing £3bn bill to address underpayment of women's state pensions

The government is facing a “mind-numbing” £3bn bill over the six years to 2025-26 in order to address the "systematic underpayment of state pensions", figures from the Office for Budget Responsibility (OBR) have revealed.

The OBR’s economic and fiscal outlook predicted that these costs will peak at £0.7bn in 2021-22, in order to address the underpayment of women's state pensions.

However, it clarified that some costs are expected to fall outside of the forecast period, and that any costing is subject to a “high degree” of uncertainty as the true extent of the underpayment is “not yet established”.

Issues around the underpayment of state pensions were first highlighted by LCP partner, Steve Webb, in March 2020, after a freedom of information request revealed that “tens of thousands” of women were not receiving the state pension uplifts that they were entitled to.

The problem affected married women whose husbands reached pensionable age before 2008, as well as widows and those over 80, who were unknowingly entitled to an 'enhanced pension' that would have boosted their payments by up to 60 per cent.

The OBR’s report confirmed that subsequent DWP investigations between May and December 2020 have uncovered a “systematic underpayment of state pensions”, meaning that “tens of thousands” of married divorced and widowed people may have been underpaid since 2008.

Webb described the OBR's estimation as "mind-numbing", with previous predictions for the potential costings placed at around £100m.

“When I first looked into this issue a year ago I had no idea it would explode into such a huge issue," he continued.

“Repayments of £3bn over the next five years could imply huge numbers of women have been short-changed, potentially for a decade or more.

“The government needs to devote serious resources to getting these repayments out quickly as these women have waited long enough”.

The government has previously emphasised that analysis of relevant records was "ongoing", with Pensions Minister, Guy Opperman, confirming that the DWP had "quadrupled" the workforce addressing the problem from 37 to 100 in recent months.

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