MPs criticise ‘shameful’ underpaying of state pensions

Pension Close up of a man with a wallet putting coins inside
The Department for Work and Pensions (DWP) estimates it has underpaid 134,000 pensioners. Photo: Getty (Peter Dazeley via Getty Images)

The long-term underpayment of thousands of state pensioners, mainly widows, divorcees and women who rely on their husband’s pension contributions for some of their pension, is a “shameful shambles”, according to the public spending watchdog.

About 134,000 people have had their state pension underpaid to the tune of £1bn, according to a Department for Work and Pensions (DWP) estimate.

The vast majority of those affected are women who should have had their pension topped up when their husband retired even if they did not build up enough national insurance contributions in their own right.

An investigation from the National Audit Office (NAO) last year found out that nearly 40,000 pensioners may have died without knowing they were owed thousands of pounds.

Dame Meg Hillier, chairwoman of the Public Accounts Committee (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."

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The DWP tends to destroy records four years after a pensioner’s death due to data protection.

The committee of MPs said the underlying IT system relied on to manage millions of pensioner records dates back to 1988 and is heavily manual.

The DWP has admitted it might not be able to trace the next of kin for around 15,000 deceased pensioners. Of the 118,000 pensioners it can trace, it estimates the average repayment could be £8,900.

There is currently no formal plan for contacting the next of kin where a pensioner who was underpaid is dead, the committee said.

So far, the Department has found underpayments of between £0.01 and £128,448.37.

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.

The process to identify and calculate repayments will cost more than £24m, involve more than 500 staff, and take around three years.

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Dame Hiller added: “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.”

The PAC said the department should consider whether there are cost-effective ways to upgrade its IT systems “as a matter of urgency”.

The committee said the DWP has not been sufficiently transparent to the 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.”

Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, commented: “Today’s 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.”

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