State pension warning as more than half a million retirees underpaid - check if you're affected

More than half a million people receiving the state pension are believed to be underpaid, with around one in 20 pensioners thought to be getting less than they should.

The errors could leave some retirees missing out on tens of thousands of pounds across a typical 20-year retirement, and many cases may never be corrected unless pensioners spot the mistakes themselves.

The scale of the issue has been uncovered in analysis by Money Mail, prompting former pensions minister Sir Steve Webb to warn about growing chaos in Britain's state pension payment system.

Sir Steve, currently a partner at pension consultancy LCP, says: "We have almost reached the stage where people should start from the assumption that their pension may be wrong and make sure they check thoroughly that everything is in order."

The Department for Work and Pensions' most recent fraud and error report, released last week and examined by Sir Steve, reveals that five in every 100 state pension claims contain mistakes.

Sir Steve says: "It is incredible that even after four years of checking hundreds of thousands of cases for errors, Department for Work and Pensions still reports that five in 100 state pension claims are incorrect."

He adds: "The numbers involved may be small for a giant bureaucracy, but they can be life-changing amounts for those affected."

The problems are not new. In 2021, ministers acknowledged systematic calculation errors had left an estimated 200,000 elderly women underpaid, with the current bill for arrears standing at approximately £800million.

Three categories of women were primarily affected: widows who did not receive inherited pension entitlements following their husband's death, married women whose payments should have reflected their spouse's contribution record, and those over 80 receiving below £110.75 weekly whose pensions should have been reviewed and increased.

Parents, particularly mothers, have been significantly affected by a separate category of errors involving Home Responsibilities Protection.

Between 1978 and 2010, those who stepped away from employment to raise children were entitled to have years deducted from the 39-year requirement for a full basic state pension.

A parent spending 19 years caring for children should therefore have needed just 20 years of National Insurance contributions.

However, these childcare periods were frequently not recorded correctly on National Insurance files, meaning credits for time at home were never applied.

This failure to properly document years spent on childcare responsibilities now accounts for 60 per cent of all underpayments linked to National Insurance errors.

The government has paid £104million in back payments to around 12,400 parents, with average payouts of £8,400.

Sir Steve has criticised the department for not updating its claims process despite years of awareness about missing Home Responsibilities Protection records.

He says: "Given that issues around missing HRP have been common knowledge for years, it is particularly remarkable that DWP has not reviewed the claims process and added questions about children to the state pension claim form."

Morgan Vine of Independent Age, a charity supporting older people facing financial hardship, says: "Budgets are being stretched to breaking point, forcing many older people living on low incomes to make drastic cutbacks on essentials such as food and water."

Baroness Altmann, another former pensions minister, says: "Underpaying one in 20 older women means hundreds of thousands of them have less money to live on than they should."

A DWP spokesman says: "These figures reflect historical recording issues with Home Responsibilities Protection, not widespread errors in recent claims."

Those who have not yet reached state pension age should begin by reviewing their forecast at gov.uk/check-state-pension. Anyone set to receive below the current full rate of £241.30 weekly who took time off for childcare should investigate further.

Home Responsibilities Protection years do not appear explicitly on National Insurance records, creating a quirk that makes verification difficult. Pensioners can telephone the HMRC National Insurance helpline on 0300 200 3500 to confirm whether HRP has been applied.

Sir Steve says: "Any year of HRP should show up on your NI record as a full qualifying year towards your state pension. So if you check your record and find gaps for time at home with children since the HRP system was introduced in 1978/79 you should follow this up by putting in a claim."