Billions of pounds in state pension rights ‘thrown away’

Many are unaware they can claim pension credits and top up their retirement pots.

Hundreds of thousands of pensioners are missing out on billions of pounds in state pension, according to new analysis.

The research, by pension consultants LCP, points to an even greater number who are at risk of being short-changed in future because of a few simple mistakes – more than seven million people across the UK.

Problems arise because of the way the state pension is calculated. To claim the full state pension you need to first chalk up 35 qualifying years of National Insurance credits.

This means reaching retirement with one year short can cost 1/35 of the full pension.  At current rates this is £5 per week, roughly £250 per year or £5,000 in lost pension over a twenty-year retirement. 

Some people who have been missing out on credits for years could easily lose tens of thousands of pounds in state pension payments as a result, LCP found.

Those missing out are often carers and parents not in paid work, meaning these losses fall most heavily on women.

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 Through a combination of families with children under 12, those claiming universal credit and related benefits, carers and those in low-paid work, over seven million people are building up National Insurance credits at any point in time – and so are vulnerable to the errors that would lower their final state pension entitlement.

If just 250,000 people are missing out on credits at any point, and typically miss out for four years, they lose £20,000 in state pension payments in retirement. Overall the total amount lost by these people could be as much as £5 billion.

Steve Webb, a partner at LCP said: “Far too many people – and women in particular –  are missing out on the credits that are there to help them. There are billions of pounds in state pension rights being thrown away every year and the government needs to do much more to make sure people take up what they are entitled to.”

LCP has flagged common pitfalls for those building up National Insurance credits, and how to avoid them to get all the state pension due when you reach retirement age.

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 Claims for some credits can be backdated for many years.

One example – nicknamed ‘grandparent credit’ – can be backdated nearly a decade, while another – for military spouses – can be claimed all the way back to the mid-1970s.

Also some people can miss out on credits because the ‘wrong’ person claims the qualifying benefit. Often this happens with child benefit, where it may be a mistake for the higher earner in a couple to be the main recipient of the benefit. As many as 200,000 couples are thought to be in this position.

Those caring for disabled people do not need to get carers benefit to be entitled to carers’ National Insurance credit. Those doing 20 hours per week or more of caring can also qualify in certain circumstances.

Currently the state pension pays out £175.20 a week, every week, from the day you reach retirement age for the rest of your life.

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