Understanding the State Pension
It recently came to light that 134,000 people have been underpaid their state pension. A public spending watchdog released a report that showed the cases were mostly women, many being widows. The underpayments reached a total of £1 billion. Some of these underpayments date all the way back to the mid ‘80s.
These underpayments occurred because of a number of factors. First, entitlement rules are complicated, and not everyone understands what they are owed. Second, the Department for Work and Pensions (DWP) uses outdated IT systems. Thus, incorrect information was likely input by computer automations. Additionally, DWP employees did not manually check the calculations on a regular basis.
This monumental oversight has the potential to impact pensioners’ housing benefits, pension credit, and social care. For many, it already has. 15,000 pensioners have died without ever having been given what they were entitled to. To make matters worse, their next of kin will not receive payments.
Former pensions minister, Steve Webb, first raised the issue in 2020. This triggered the DWP to begin an investigation into who was a victim of the mistake, and who is entitled to compensation. It is still an active investigation and is scheduled to be completed by 2023. Unfortunately, those who were affected will need to file a claim, as they will not be automatically recompensed. Additionally, they may not receive the full amount they are owed.
Know what you are entitled to
Pensions are one of the most crucial factors in having a comfortable retirement. However, the discourse surrounding them is often convoluted. Because of antiquated bureaucratic systems and complex rules, many end up losing track of some of their pensions throughout their lifetimes and are unsure how to trace them. Pensioners are also often unaware of just how much they are entitled to.
Looking into your pensions and finding out how to receive the money you are owed will greatly benefit your overall retirement plan. In addition to receiving the money you are entitled to, there are ways to increase your income. A financial adviser can help you determine how you can make the most of your money.
Defer your state pension
For example, it has recently been found that if you delay your receipt of the state pension for 12 months, you will get an extra 5.8% added to your income for the rest of your life. (This number may increase depending on whether the triple lock increases by over 2.5% in the next few years.)
It is possible to defer your state pension for as long as you choose, but you must defer the full amount. Even if you have already started drawing from your pension, you may still defer it in order to earn the extra money. Deferring your state pension may be an especially attractive opportunity if you have a company pension or retirement income from elsewhere.
Of course, deferring means that you will need to work longer. This is not an option for everyone, so there are other ways you can increase your state pension. Something that many people do not know is that the government offers different pension credits that will help boost your income.
Apply for Pension Credit
If you have a low income and are over the state pension age, then you can apply for these credits. Pension Credit can help provide you with support for mortgage interest or housing benefits if you live in a rental property, reductions on council tax, and a free TV licence for those 75 and over. It can also help with any NHS dental or optical treatments you may require.
Top up your pension
If you will not or do not have enough years to qualify for the full state pension, you may want to consider topping up your state pension. A top up scheme will allow you to increase your weekly income by up to £25 if you pay a Class 3 National Insurance contribution.
Seek professional advice
It has been made clear now how grave administrative errors can occur. Therefore, it is imperative to not only track down any lost pensions you may have, but to also find out what options you have for those pensions.
Our Wealth Managers can help you do just that. If you are interested in speaking with a qualified adviser about your retirement plan, schedule a free consultation today. Don’t lose out on the money you are owed.