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So are YOU entitled to a payout? As a damning report says at least 134,000 pensioners were let down by the Government, how to find out if you have been short-changed

  • MPs warned retirees are still at risk of being denied the money they deserve 
  • Scandal affected women whose pensions should’ve been upgraded by the DWP
  • Wives entitled to 60% rate from day their husband reached state pension age 










A damning report by MPs has blasted the Department for Work and Pensions over the £1billion underpaid state pension scandal.

It levels the charge of a ‘shameful shambles’ at the DWP and said its complacency failed pensioners, with 134,000 women estimated to have missed state pension rises or payments when their husbands reached state pension age or died, or when they themselves reached the age of 80. 

The report credits This is Money – the sister financial website to MailOnline and the Daily Mail – and  its columnist, former pensions minister Steve Webb, for uncovering cases of women being underpaid in January 2020, bringing the scandal to light and forcing the DWP to act. 

We explain below how to find out if you could be affected and get paid the money you are due. 

Ignored: Many wives may have missed out because the vital forms were sent to their husbands when it was time to claim (file image)

Ignored: Many wives may have missed out because the vital forms were sent to their husbands when it was time to claim (file image)

What is the underpaid state pensions scandal?

The scandal mostly affected women who should have had their pensions upgraded by the DWP without having to ask.

Those affected reached state pension age before April 2016. They include wives entitled to a pension worth 60 per cent of their husband’s basic rate, and also divorcees and widows who could claim as much as 100 per cent.

Others who missed out include pensioners who should have been paid the minimum 60 per cent of the basic state pension after they turned 80. 

What are women owed? 

The basic rate state pension pays £137.60 a week, so someone on a 60 per cent rate should receive around £82.45.

Wives are entitled to the 60 per cent rate from the day their husband reached state pension age.

But a rule change in March 2008 required the Department for Work and Pensions to pay the increased pension automatically.

Those wives who reached state pension age before then had to claim the extra income themselves. 

Those who were unaware can upgrade their pensions, but cannot claim all of the money they missed out on.

Do I need to act? 

The DWP says those whose husband became entitled to their pension on or after March 17, 2008, do not need to take any action and will be contacted. 

However, following the shambolic handling of the affair so far – and the recent state pension delays affecting new pensioners – many women may want to try to find out if they should be owed money.

Steve Webb has created a tool to help women find out if they could be affected. To find out if you’ve been short-changed, go to lcp.uk.com/is-your-state-pension-being-underpaid.

If you believe you are missing out, you can call the Pension Service on 0800 731 0469 or write to: The Pension Service, Post Handling Site A, Wolverhampton, WV98 1AF.

DWP pays £17,000 to 73-year-old woman it failed to help six times

Since January 2020, This is Money has revealed a raft of cases where women were owned sums running into the tens of thousands of pounds. Many were only paid after we stepped in.

In the most recent case, revealed in December, a divorced elderly woman on a meagre state pension got nearly £17,000 from the Department for Work and Pensions after it repeatedly botched her payments.

Josephine Cameron, 73, was ignored or misinformed by staff who failed to spot she was on the wrong amount six separate times since 2015.

The former care home worker, who lives in Bedfordshire, contacted This is Money and Steve Webb to ask for help last month, after she was told her £85 per week pension was correct but thought the DWP was wrong.

After Steve asked the DWP to investigate, the error was discovered and Ms Cameron has now received arrears and an increase in her state pension to nearly £140 a week.

She says: ‘It’s awful. You have to be persistent. I kept thinking I am going to try again. I thought what have I got to lose.

‘It’s life changing. Over £50 a week extra to me is life changing. On the odd occasion I could afford to go out with friends, I had coffee. They would have cake. I didn’t have cake. I can buy cake now.

‘All my clothes come from charity shops. The only thing I buy new is underwear. I cut my own hair. This Christmas I can get my children something.’

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Savers navigating ‘pensions minefield’ need help to make better decisions, MPs warn










Savers are in a ‘pensions minefield’ and need help to make better decisions, MPs warn.

The Work and Pensions Committee says Government and regulators must ‘end their timidity’ to assist savers, some of whom are ending up as victims of pensions scams.

They also want automatic appointments with Pension Wise to be trialled. It offers those aged 50 and over free, impartial guidance.

The Work and Pensions Committee says Government and regulators must 'end their timidity' to help savers avoid making poor decisions and in some cases falling victim to pensions scams

The Work and Pensions Committee says Government and regulators must ‘end their timidity’ to help savers avoid making poor decisions and in some cases falling victim to pensions scams

The pension freedoms of 2015, gave people a much wider range of choices over what to do with their pot than buying an annuity.

Yet the Financial Conduct Authority told the MPs consumers judged pensions a ‘minefield’. Many struggled to understand how they work.

Committee chairman Stephen Timms, says: ‘The pension freedoms, far from living up to their name, will instead trap people in an increasingly confusing web of complexity.’

b.wilkinson@dailymail.co.uk

TOP SIPPS FOR DIY PENSION INVESTORS

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More wealth is tied up in pensions than in property, particularly among the best off people in the country, new official figures show.

Wealth per household was £302,500 in 2018-2020, at the median or midpoint level. That’s up from £286,600 in the previous two years, and by a fifth when adjusted for inflation over the past 14 years.

Pensions make up 42 per cent of wealth in Britain, and property – minus mortgage debt – represents 36 per cent, according to the latest research by the Office for National Statistics.

What do we own? Pensions are the largest component of total wealth, rather than property

What do we own? Pensions are the largest component of total wealth, rather than property

Financial wealth, or savings or investments, makes up 13 per cent and physical wealth, such as house contents and cars, makes up 9 per cent.

But what makes up the biggest share of your wealth depends on how much you have overall, with belongings most significant for the poorest, property for mid-range households, and pensions for the wealthiest in the country.

The above has not changed much since 2016-2018, but the ONS says there has been a shift in the past 14 years, with pensions now the largest component of total wealth, rather than property.

Reasons for this change could include lower levels of home ownership for younger people, varying pension pot valuations, and the introduction of automatic enrolment and increase in the state pension age which are causing people to contribute to their pensions for longer, according to the ONS.

But despite pensions making up such a big proportion of the country’s wealth, there are wide disparities among the older generations, with many very poor pensioners relying on the state pension and benefits.

Source: Office for National Statistics

Source: Office for National Statistics

There was a huge row over the Government’s decision to suspend the ‘triple lock’ guarantee on state pension increases and raise it by 3.1 per cent this year. 

And rising inflation, especially energy price hikes, is causing great concern among elderly people struggling to pay their bills. 

Meanwhile, Jason Hollands, managing director of Bestinvest, points out that pensions have increased in value on the back of surging global stock markets in recent years.

He adds that the ONS figures reflect the growing pressure on workers to make their own financial provision for retirement.

Source: Office for National Statistics

Source: Office for National Statistics

‘As final salary or defined benefit pensions schemes have closed to new members, and state pension entitlement has been pushed steadily further down the line, the public are waking up to the fact they will need to focus on their own savings and investments to plan for a comfortable retirement.

‘Auto-enrolment has obviously assisted in this, leading to a huge growth in defined contribution pensions and turning vast number of people into long-term investors for the first time.’

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, says: ‘The divide between the richest and poorest groups isn’t widening, but it’s still eye-watering.

‘The richest 10 per cent of households hold 43 per cent of all the wealth, and the least well-off half of the country holds just 9 per cent of the wealth. The mega-wealthy 1 per cent of the country has an average of £3.6million in assets.

‘While pensions make up a major part of the difference, whether you have got onto the property ladder also drives a huge divide between the most and least wealthy.

‘Property wealth is the second biggest component of wealth overall – at 36 per cent. The very wealthiest are much more likely to own their home outright, while those with fewest assets are likely to be struggling to buy their first property.

Source: Office for National Statistics

Source: Office for National Statistics

‘It’s one reason why older people have far more wealth than younger people, who have a mountain to climb to afford their first property.’

The ONS data also shows median wealth was highest for households where a member was aged between 55 years and state pension age at £553,400 – 25 times higher than that of those aged 16-24.

Meanwhile, household median wealth was highest in the south east at £503,400 – up 43 per cent since 2006 after adjusting for inflation – and lowest in the north east at £168,500.

TOP SIPPS FOR DIY PENSION INVESTORS

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Pensions are often neglected in divorce settlements despite their value to both partners.

What happens to the shared home is typically prioritised, for immediate practical reasons, especially if a couple has children. 

Yet, there is growing recognition of the importance of pensions as an joint asset in a marriage.

Getting divorced? Find out how to avoid the worst pitfalls when dividing pensions

Getting divorced? Find out how to avoid the worst pitfalls when dividing pensions

‘Pensions are increasingly a major issue in divorce but for the growing number of older couples getting divorced private pensions are often the most valuable asset after the family home,’ says lawyer Francesca Davey, of law firm Nockolds.

However, she warns: ‘With more people undertaking DIY divorces online, the chances of making a mistake in relation to pensions is increasing. 

‘Couples going through divorce can place undue emphasis on the house and overlook the other spouse’s pension pot.

‘This can be financially disastrous for someone with little or no retirement provision. If a spouse has built up even a modest final salary pension scheme there is a good chance that it will be worth considerably more than the average UK house.’

Experts say there are three main options when dealing with pensions in a divorce – sharing them on a clean break basis, one partner earmarking some of the income to be paid to an ex-spouse after retirement, and offsetting their value against other assets.

We look at the pros and cons of each below, and run through some further tips on what to do and how to avoid the worst pitfalls when dividing pensions.

1. Pension sharing

A pension is split into two separate pots straight away on divorce. Each ex-spouse walks away with a share, which they control themselves from then onwards.

Splitting pensions fairly in a divorce 

A free jargon-busting guide was launched by a legal charity last year to help couples divide one of their most valuable assets. Find out more here.

This enables a clean break and ensures neither of the couple is left in the worst possible position when it comes to building a retirement income, says Sarah Coles, senior personal finance analyst at financial services firm Hargreaves Lansdown.

But she says the cons are that it can be relatively complicated, and requires a pension sharing order from the court, which will establish how the pension should be split.

‘It may make sense to get financial advice to improve your chances of securing a fair split. You may also need more advice if the pension needs to be transferred, and in rebuilding your retirement savings. This will come at a cost,’ says Coles.

‘It leaves both partners with work to do in order to rebuild their pension.’

Francesca Davey, senior associate at Nockolds, says: ‘The benefit of a pension sharing order is that the fund is immediately divided between the spouses, meaning the applicant knows what is going into their pension pot now and can plan ahead.

‘People need to think carefully about whether a pension attachment or a pension sharing order is the most appropriate remedy.’

2. Pension attachment order or earmarking

A percentage of someone’s future pension income and retirement lump sum is paid to their ex-spouse when they start taking their pension.

Coles says this enables the pension to be shared, so nobody needs to start from scratch, but it needs to be ordered by the court which comes at a cost.

Struggling financially during or after divorce? 

Find out 10 ways you can help build your wealth back and maintain it here.

‘It’s not a clean break, because it’s essentially maintenance paid from the pension. All the tax is paid by the person taking the pension – even when part of the income is received by their ex,’ she says.

‘The person who doesn’t have the pension has no control over when they receive the benefits – so their ex can delay taking it.

‘They can also stop paying into that pension and build up savings elsewhere. And when they die, the pension payments will stop to their ex.’

Davey warns: ‘In many cases a pension attachment order may not be the most appropriate remedy. This is because the order does not prevent a person from transferring money out of their pension or oblige them to continue paying in, so unless the pension is already in drawdown, it can be ineffective.

‘A pension attachment order is risky unless the pension is already in drawdown and it is important to look at exactly what benefits the pension type offers to avoid losing out by choosing the wrong option.’

3. Pension offsetting

A pension is retained by the holder and its value is traded off against that of other joint assets.

‘It’s a relatively straightforward way to secure a clean break,’ says Coles. ‘It can enable one half of the couple to remain in the family home.’

But she adds: ‘Whoever trades away their right to a pension will have a mountain to climb when it comes to building a decent income for retirement.’

What else should you consider?

Is my daughter’s husband playing fair in divorce? 

He claims his pension of £280k is equal to her £120k final salary pension… and doesn’t want to share. Read more here.

Regional differences

‘What can be divided depends on where in the UK you are divorcing,’ says Menna Cule, financial planner at wealth manager Brewin Dolphin.

‘In England, Wales and Northern Ireland the total value of the pensions you have each built up is taken into account, excluding the basic state pension.

‘In Scotland, only the value of the pensions you have both built up during your marriage or civil partnership is considered. Normally, anything built up before you married or after your “date of separation” does not count.’

Financial advice

Not understanding the value of what you have is a trap for people splitting up, says Coles.

‘The divorce process involves dividing your assets, so you need to understand the value of it all. Couples often offset assets, but it’s important to appreciate the value of what you are giving up and possibly speaking to a financial adviser.

‘There are a few options to consider, so you need to be certain you choose the best one for your circumstances.’

Ben Glassman, a partner and the head of family and divorce at wealth manager Tilney Smith & Williamson, says it’s important to get financial as well as legal advice at the outset, not wait until after a divorce settlement is agreed.

‘The divorce process can be confrontational but also nuanced. There are many opportunities for conflict, mistrust and misunderstanding and so it is important to have the right team supporting each party.

‘Independent financial assessments can benefit both the divorcing parties and achieve clarity around the real value of the couple’s matrimonial estate.

‘Involving a financial planner early on means that they can help shape the divorce settlement to achieve an optimal outcome for the long-term.

How to make a clean financial break in a divorce 

Find six key tips for separating couples here.

‘In particular, the gut reaction is often to hang on to the family home, but this may not always make financial sense, especially when there are other sizeable assets to consider such as pensions.’

Tax issues

Couples who split up assets and will be on separate incomes after a divorce should consider the tax consequences, and whether they need help from an accountant, financial adviser or planner.

This is especially the case if a large pension is involved, which approaches or is over the lifetime allowance, currently £1,073,100.

This is the maximum in retirement savings you can build up over a lifetime and continue to benefit from pension tax relief.

Going over the limit can attract charges, but there are various protections against these, which are complicated.

‘Additional caution is needed for those getting divorced. Transitional protection affects both the debited and credited member and in certain circumstances can lead to the loss of tax protection altogether,’ says Glassman.

‘Understanding the interactions of these protections at divorce and the strategies that can mitigate potential tax charges can result in significant savings for both parties.’

Meanwhile, inheritance tax, income tax and capital gains tax can also be affected by divorce.

STEVE WEBB ANSWERS YOUR PENSION QUESTIONS

       

State pension

These are also important, especially for women who often have gaps in their career which could affect their state pension entitlement, says Glassman.

‘It’s important to obtain a projection, particularly when looking to equalise the pension entitlement of the two spouses. The value of a guaranteed income of nearly £9.500 from age 66 (currently) until death is not to be underestimated.’ 

Expression of wishes

Keep your expression of wish forms with your pension schemes updated, says Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown.

‘You will have filled out an expression of wish form to say who you would like to receive your death benefits when you started your pension.

‘However, this may have been a long time ago and in the meantime, you may have divorced, separated or started a new relationship and so the person named on the forms may not be the person you want to benefit.

‘While administrators/trustees may have discretion in some cases to award death benefits to someone other than who is named on the form, sometimes they don’t. It’s best to make sure these are updated regularly to make sure your wishes are considered should the worst happen.’

Married and hoping you will never get a divorce?

If you are married it’s best to build up both partners’ pensions in tandem and ensure they are both fully funded.

That way you enjoy the maximum benefit in retirement if you stay married, and are more likely to avoid a costly battle if you divorce.

‘Talk to your partner about their pension,’ says Becky O’Connor, head of pensions and savings at Interactive Investor.

‘The couple that plans together, parties in retirement together. What’s in your partner’s pot? How will you plan your joint finances when you are retired and potentially drawing an income from different sources?

‘Have you got joint plans for different pots? What are your joint priorities for retirement? Travel? Leaving a big inheritance? An open dialogue between couples can make managing retirement finances much easier.’ Read more of O’Connor’s pension tips here. 

Meanwhile, if you do get divorced and both partners’ pensions are already a similar size, much of the difficulty – and hostility – involved in dividing them can be avoided.

TOP SIPPS FOR DIY PENSION INVESTORS

Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.