Former Pensions Minister Sir Steve Webb, now a consultant at pensions firm LCP, says that papers published alongside today’s Budget reveal a “mind numbing” £3bn repayment to underpaid women on state pensions.

The Office for Budget Responsibility today released its economic and fiscal outlook which provided updates on underpaid state pensions going back nearly two decades.

According to the OBR the DWP has identified underpayments of state pension relating to entitlements for certain married people, widows and over-80s going back to 1992. 

Its initial estimate of the cost of rectifying this underpayment is around £3 billion over the six years to 2025-26 with costs peaking at £0.7 billion in 2021-22.

Sir Steve said: “This figure is truly mind-numbing.  When I first looked into this issue a year ago I had no idea it would explode into such a huge issue. 

“Repayments of £3bn over the next five years could imply huge numbers of women have been shortchanged, potentially for a decade or more. The government needs to devote serious resources to getting these repayments out quickly as these women have waited long enough.”

The OBR also says that due to an administration error identified in March 2020 a small number of people had been underpaid in the ‘category BL’ element of the state pension. 

The underpayment affected married women whose husbands reached pensionable age before 2008 and who were unknowingly entitled to ‘enhanced pension’ that would have boosted their payments by up to 60%. 

DWP investigations between May and December 2020 uncovered systematic underpayment of state pensions, meaning tens of thousands of married, divorced and widowed people may have been underpaid since 2008. A repayment programme began on 11 January 2021. 

In February 2020, LCP partner Steve Webb tabled an FOI inquiry to the DWP which revealed large numbers of women were getting state pensions below the expected rate, and subsequent campaigning revealed other groups of women, including widows and the over 80s may also have been affected.  

The DWP has set up a special unit employing more than 100 civil servants to look into the issue but today is the first time that DWP has admitted the scale of the problem, Sir Steve said.