The Department for Work and Pensions (DWP) estimates 134,000 older people were underpaid over £1 billion in State Pension from as far back as 1985 with an unknown number of those believed to have died without ever receiving the money they were owed.
The long-term underpayment of State Pensioners has been branded a “shameful shambles” by a public spending watchdog.
In January 2021, DWP started an exercise to correct the errors – the ninth such exercise since 2018, the Public Accounts Committee (PAC) said. The errors mostly affect widows, divorcees and women who rely on their husband’s pension contributions for some of their pension.
Complex pension rules and a reliance on highly manual systems led to the underpayment of thousands of older people across the UK.
The committee of MPs said the underlying IT system relied on to manage millions of pensioner records dates back to 1988.
Quality checks failed to identify the systematic underpayments and small errors added up over years to significant sums of money.
The PAC said the department should consider whether there are cost-effective ways to upgrade its IT systems “as a matter of urgency”.
There is currently no formal plan for contacting the next of kin where a pensioner who was underpaid is dead, the committee said.
The DWP is only paying those it has identified as having a legal entitlement to arrears, in some cases many years after the event, and has been inconsistent in paying interest, it added.
It has also shown little interest in understanding the further knock-on consequences, including on social care provision, for those it underpaid, MPs said.
Fixing DWP’s mistakes comes at great cost to the taxpayer and is expected to cost £24.3 million in staff costs alone by the end of 2023, the PAC added.
Experienced staff have been moved away from business-as-usual and the department is experiencing backlogs in processing new applications.
The risk remains that the errors that led to underpayments in the first place will be repeated in the correction exercise, if not also in new claims.
Dame Meg Hillier, chairwoman of the PAC, said: “Departments that make errors through maladministration have a duty to put those it wronged back in the position they should have been, without the error.
“In reality DWP can never make up what people have actually lost, over decades, and in many cases it’s not even trying. An unknown number of pensioners died without ever getting their due and there is no current plan to pay back their estates.
“DWP is now on its ninth go at fixing these mistakes since 2018, the specialised staff diverted to fix this mess costing tens of millions more to the taxpayer and predictable consequences in delays to new pension claims.
“And there is no assurance that the errors that led to these underpayments in the first place will not be repeated in the correction exercise.
“This is a shameful shambles.”
Quality checks failed to identify the systematic underpayment of thousands of pensioners.
The PAC said an absence of regular reporting on State Pension inquiries makes it concerned that senior management “is not focused on designing a data strategy that detects errors in a more systematic way”.
It also said the department should be treating State Pension underpayments as seriously as overpayments.
And the DWP has not given people who are worried they have been underpaid enough information to find out what they should do, the committee said.
Its communications strategy is to only contact those whom it finds have been underpaid.
And its priority has been to focus on living pensioners rather than the dead, even though some of their next of kin may be financially vulnerable, the committee added.
It said the DWP has not been sufficiently transparent to Parliament about the underpayments and should provide periodic updates.
The MPs added: “Despite a campaign by the former pensions minister, Sir Steve Webb and ThisisMoney.co.uk, from January 2020, the department did not consider underpayments to be a significant issue until August 2020, meaning that it missed opportunities to identify and resolve the problem sooner.”
Paying pensioners lump sums in arrears may also affect benefits entitlements – but the department has shown “little interest in accounting for financial consequences”, the committee said.
It said the DWP should establish the full impact of receiving a lump sum and make sure people are not being treated prejudicially compared with if had they received the money when it was meant to be paid.
There must also be a risk that similar unidentified errors exist elsewhere in the system, the PAC said.
It added: “Sir Steve Webb has told us he believes the scope of the correction exercise is too narrow.”
Sir Steve, who is now a partner at consultants LCP (Lane Clark & Peacock), said: “The committee are right to be highly critical of DWP over this whole debacle.
“It is shocking that DWP’s regular checks regarded the level of error on state pensions as too small to be worth investigating when in reality many thousands of people have missed out on potentially life-changing amounts of money.”
Sir Steve added: “There are still far too many people missing out on the state pension to which they are entitled and DWP needs to track them all down as a matter of urgency.”
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said: “The report levels a series of stinging rebukes at the DWP, which failed to grasp the horrible human cost of its mistakes and has caused financial misery for over 100,000 pensioners.
“The DWP faces a costly exercise to correct these errors and will need to look at how IT systems and processes can be overhauled to prevent this from happening again.
“However, it also needs a fundamental review of how it communicates with people who come to them with concerns and the information it issues on a benefit that forms the very backbone of many people’s retirement planning.”
A DWP spokesperson said: “Resolving the historical State Pension underpayments that have been made by successive governments is a priority for the department and we are committed to doing so as quickly as possible.
“We have set up a dedicated team and devoted significant resources to processing outstanding cases, and have introduced new quality control processes and improved training to help ensure this does not happen again. Those affected will be contacted by us to ensure they receive all that they are owed.
“We are carefully considering the content of the Public Accounts Committee’s report and will respond formally in due course.”
Back payments breakdown so far
The following underpayments have been identified between January 11, 2021 and September 30, 2021.
Married (category BL)
- Number of cases reviewed: 25,990
- Underpayments identified: 2,681
- Average amount of back payment: £7,772
- Total amount repaid: £20.8m
Widowed
- Number of cases reviewed: 6,467
- Underpayments identified: 2,381
- Average amount of back payment: £8,628
- Total amount repaid: £20.2m
Oer 80 (Cat D)
- Number of cases reviewed: 6,050
- Underpayments identified: 4,429
- Average amount of back payment: £4,455
- Total amount repaid: £19.7m
What you need to know
The DWP correction activity will identify cases where individuals have been underpaid in accordance with the law.
These cases can be categorised into the following groups:
- People who are married or in a civil partnership who reach State Pension age before April 6, 2016 and may be entitled to a Category BL uplift, without the need to make a separate claim, based on their husband, wife or civil partner’s National Insurance contributions. This may be the case if their husband, wife or civil partner became entitled to their State Pension on/after 17 March 2008, or had already reached State Pension age prior to the customer claiming their State Pension
- People who have been widowed and their State Pension was not uplifted to include amounts they are entitled to inherit from their late husband, wife or civil partner
- People who have not been paid Category D State Pension uplift as they should have been from age 8
How to make a claim for a State Pension underpayment
While the DWP has said it will contact everyone affected, there is no time scale for this.
If you think you may have been underpaid you should contact DWP. Women on less than £82 per week who are or were married to men who have a full NI record and started receiving their State Pension before March 2008 should get in touch with the Pension Service.
A phone call to the pension service is the quickest way to find out if you are eligible for a State Pension refund.
The best number to call is 0800 731 0469 but full contact details can be found on the Gov.uk website here.
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