Warning over little-known rule that could see your state pension payments slashed – are you one of thousands affected?

THOUSANDS have been issued a warning over a little-known rule which could see their state pension slashed.

Widowers receiving the old state pension are being stung with deductions after inheriting their partner's allowances.

Thousands are being stung with deductions after inheriting their partner's pensionsCredit: Getty

The current full new state pension is worth £221.20 a week and was introduced on April 6, 2016.

You qualify if you are a man born on or after April 6, 1951, or a woman born on or after April 6, 1953.

But anyone born before these dates receives the basic state pension which is worth up to £169.50 a week.

Under the old state pension system, wives were able to inherit some of their partner's allowance if they died.

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Partners could only pass over their pensions if they were on a company pension scheme and "contracted out" which means they transferred some of their National Insurance contributions to a different pension plan.

The idea behind this was that the alternative pension plan would yield a larger pot later on in life.

But contracting out also meant workers' later state pension faced deductions as it was missing NI contributions.

Any widows who took on these types of pensions when their partners died also took on the deductions.

It means for anyone who has reached state pension age but is already receiving the maximum amount, the deductions actually make them worse off.

Alice Guy, head of pensions and savings at Interactive Investor, said: "This weird quirk affects thousands of widows each year who have built up their own state pension entitlement, only to see it reduced when their husband dies.

How to track down lost pensions worth £1,000s

She added: "The confusing rules meant that some widows could end up with less money after their husband died.

"The new state pension, for those who retire after April 2016, doesn’t include these complicated rules as each person builds up their own state pension entitlement which can’t be passed on to a spouse."

It is understood over 5,000 widows were impacted by this state pension issue last year.

You may be affected if you are on the old basic state pension and received your partner's allowance after they died and contracted out during their lifetime.

You will also need to have reached the current cap for the old state basic state pension.

This is split into two parts - the basic state pension and additional state pension.

You can receive up to £169.50 and £218.39 a week on both parts but if you reach this cap and have had a partner's deductions handed over to you, it would leave you worse off.

Can I challenge any deductions?

Any decision relating to an old basic state pension will be sent to you via letter by the Department for Work and Pensions (DWP).

If you're not happy with a decision that's been made, you can contact the Government department and ask for a "mandatory reconsideration".

You can request one of the forms off of the Government's website or can call the Pension Service on 0800 731 0469.

If, after asking for a "mandatory reconsideration", the DWP says it won't change anything you can go to tribunal.

The tribunal looks at the evidence from both sides, then makes a final decision.

What are the different types of pensions?

WE round-up the main types of pension and how they differ:

Personal pension or self-invested personal pension (SIPP) - This is probably the most flexible type of pension as you can choose your own provider and how much you invest.
Workplace pension - The Government has made it compulsory for employers to automatically enrol you in your workplace pension unless you opt out.
These so-called defined contribution (DC) pensions are usually chosen by your employer and you won't be able to change it. Minimum contributions are 8%, with employees paying 5% (1% in tax relief) and employers contributing 3%.
Final salary pension - This is also a workplace pension but here, what you get in retirement is decided based on your salary, and you'll be paid a set amount each year upon retiring. It's often referred to as a gold-plated pension or a defined benefit (DB) pension. But they're not typically offered by employers anymore.
New state pension - This is what the state pays to those who reach state pension age after April 6 2016. The maximum payout is £203.85 a week and you'll need 35 years of National Insurance contributions to get this. You also need at least ten years' worth to qualify for anything at all.
Basic state pension - If you reach the state pension age on or before April 2016, you'll get the basic state pension. The full amount is £156.20 per week and you'll need 30 years of National Insurance contributions to get this. If you have the basic state pension you may also get a top-up from what's known as the additional or second state pension. Those who have built up National Insurance contributions under both the basic and new state pensions will get a combination of both schemes.