State Pension: women getting £1 pensions entitled to thousands more

Married women missing out on 10s of thousands of pounds they should get through their State Pension.

The State Pension is a key part of most people’s retirement planning. No, it’s never going to be enough for a lavish lifestyle once you pack up work, but it’s money that can go a long way towards making your retirement more comfortable.

The trouble is that over the last year or so it’s become clear that substantial numbers of women aren’t getting the right State Pension.

These women ‒ generally married, divorced or widowed ‒ should have been entitled to a larger state pension on account of their husband’s National Insurance record, and yet thousands have been shortchanged, as we have covered repeatedly on loveMONEY.

And now a new investigation from pension consultants LCP has suggested that there are even more women who are likely being paid mere pence at the moment, but who should be getting thousands from the State Pension.

The ‘graduated retirement benefit’ problem

First, let’s take a step back and review how the old State Pension worked. Essentially there were three main elements here:

• The ‘basic’ State Pension;
• An earnings-related pension, known as SERPs, earned since 1978;
• Graduated retirement benefit (GRB) ‒ a sort of forerunner for SERPS ‒ which ran from 1961 to 1975.

It’s this last section that’s most relevant to LCP’s latest investigation. With GRB, workers effectively bought a unit of benefit with the contributions they made from their salary. So for men, even £7.50 bought one unit, while for women it was around £9.

The idea was that these units would then top up your basic State Pension once you start receiving it.

Where things have gone wrong

LCP’s study found that there are plenty of women who get nothing from the basic State Pension.

This is down to a rule in place at the time which meant that you had to have a 25% contribution record before you qualified for the pension at all.

However, these women are receiving a minimal GRB, often at just paltry amounts.

Here’s a breakdown that LCP obtained from the Department for Work & Pensions of the numbers of women receiving GRB alone ‒ and how little they are getting.

As you can see, that’s the best part of 24,000 women who are being paid just 86p a week through our pension scheme.

Now, in fairness, some of those ‒ particularly those living outside the UK ‒ are likely to have husbands who have little or no entitlement to a State Pension, and so could not claim much based on their husband’s contributions.

Yet as LCP points out, there are more than 5,000 women living in Great Britain, and argues there is “no reason” to suppose that many of those ‒ as well as some of those living abroad ‒ could not claim a higher State Pension based on their husband’s record. 

This isn’t merely theoretical either.

Sir Steve Webb, the former pensions minister who is now a director at LCP, has helped three women in this position recently.

All were until recently on around £1 a week but have since been handed back-pension payments of between £33,000 and £60,000.

That’s a vast, life-changing sum of money that these women are missing out on.

Won’t the DWP investigation find them?

To give the DWP some credit, it has recognised the issue with historic underpayments of pensions to married women and is now going through its records to identify those who are missing out unfairly on the money they should be receiving, as we covered in Thousands of women in line for back-payments.

However, it’s important to recognise that these particular women are unlikely to pop up in that investigation. As LCP points out, from the DWP perspective as they have not technically claimed their State Pension, they are not yet classed as being underpaid.

As a result, it’s crucial that women in this position are proactive in contacting the DWP themselves rather than hoping the department notices their case.

How much can they get?

Importantly, because these women are classed as not yet having claimed their own pension, if they do claim now this can be treated as a deferred claim, all the way back to when their husband turned 65, even if this was before 2008 when the rules changed.

This can make a substantial difference to the sums they may be entitled to.

As LCP points out, simply adding up 52 weeks of the married woman’s pension for the period of 2008-9 to 2020-21 gives a figure of more than £45,000, but if the husband turned 65 earlier than that then the back-payment can be even larger.