When retired Peter Williams got down to his last £200 of savings, he reluctantly decided he must release some cash from the home that had been in his family since 1965.
But when an equity release adviser visited his £240,000 house, he discovered Peter had not claimed his state pension for 11 years.
And just one call to the Pensions Service revealed the retired bachelor was now owed a £132,800 windfall.
Windfall: Peter Williams thought he wasn’t entitled to a state pension having opted out of the State Earnings Related Pension Scheme
Peter, 76, from Cardiff, had applied for his state pension by post when he turned 65 in 2008 — but after hearing nothing back, he assumed a decision he had made 20 years earlier to opt out of the State Earnings Related Pension Scheme (Serps) meant he’d forfeited his right to a state pension.
He then spent the next 11 years surviving on a private pension of £500 a month, dipping into his savings to top up his income.
It is not known how many people are — like Peter — unaware that they can now collect a pension. But experts say he is not alone.
Some may be missing out as a result of a common misconception that retirees will automatically receive the money when they reach state pension age; whereas, in fact, if you do not claim the state pension, it will automatically be deferred.
Others, like Peter, may wrongly believe they are not entitled to one at all.
This is because the state pension used to be split into two parts: the basic state pension and Serps.
Many workers made the decision to ‘contract out’ of Serps, which meant they and their employer paid less National Insurance.
The downside was that you gave up your right to the Serps top-up and received a lower state pension. The idea was that your employer would enrol you into a company pension to make up the difference.
However, opting out of Serps does not affect your entitlement to a basic state pension.
Around four months before you reach state pension age, you should receive a letter and a booklet from the Pension Service explaining how to claim.
If the Pension Service does not hear from you, it will assume you want to defer your state pension to a later date and not contact you again.
If the Pension Service does not hear from you when you reach state pension age, it will assume you want to defer your state pension to a later date and not contact you again
Deferring your state pension can be highly beneficial, particularly if you continue working into retirement, as it can reduce your tax bill.
And for every year you delay, it increases. At present, you typically get an extra 1 per cent for every nine weeks you wait, or 5.8 per cent a year.
Peter unwittingly deferred his pension for 11 years. A retired manager of a truck company, he has dyslexia and struggled to understand the letters about his pension. His claim then went missing after he sent it to Belfast instead of Wolverhampton.
Under the old system prior to 2016, if you deferred your state pension you would earn an extra 10.4 per cent a year on what you were entitled to at retirement age.
You could then opt to take the back payments as a lump sum or get a higher monthly income (today, you can use the extra money only to boost your monthly payments).
It meant Peter, who retired before 2016, could choose between a £132,800 lump sum and a basic state pension going forward, or no lump sum and a higher monthly income of £2,000.
Peter says: ‘When I heard how much they owed me, I was elated. I said: ‘I’ll take the lump sum, thanks very much.’ It is a life-changing sum for me and means I have now been able to start modernising my house.’
Peter’s equity release adviser, Graeme Donegani of Responsible Life, says: ‘The first thing we do is to check whether a client is claiming all the benefits they are entitled to.
‘Our job is to point out the alternatives to taking an equity release mortgage and only offer it as a last resort. Peter was crying with happiness when he heard the news.’
Steve Webb, director of policy at insurer Royal London, says: ‘If you are over pension age and have not received anything, you should call the Pension Service.
‘If it does not hear back, the Pension Service assumes that taxpayers want to defer their state pension. But the letter may not have reached its destination.’
Under the new system, introduced in 2016, you need 35 years of National Insurance contributions (NICs) to qualify for a full state pension — £168.60 a week. If you have fewer than ten years of NICs, you’re not entitled to any state pension but can claim other benefits, such as pensions credit.
A Department of Work and Pensions spokesman says: ‘We want everyone to be able to claim what they are entitled to and have a wide range of channels where people can get information and advice.’
You can claim online at gov.uk/get-state-pension or call 0800 731 7898 and ask for the forms to be posted to you.
s.partington@dailymail.co.uk