Underpayments of the State Pension
Closed
What the inquiry looked at
“In early 2020 the Department for Work & Pensions (DWP) became aware of underpayments of State Pension affecting certain women who reached State Pension Age before 2016 . Subsequent DWP investigations uncovered systematic issues meaning that tens of thousands of people might have been underpaid State Pension for many years. DWP is currently working to identify all affected individuals and began making repayments in January 2021. However, this is not the first widespread error discovered at DWP in recent years, and correcting these errors comes at great cost to the taxpayer. The Committee will questions senior officials at DWP on who has been underpaid the state pension in this instance, and why, what DWP is doing to put it right and what lessons it is learning that it can apply to similar problems it has experienced over many years across other benefits. If you have evidence on these issues, please submit it here by Monday 25 October 2021.”
The committee's words, from the inquiry page on parliament.uk ↗.
What it found
The Department for Work & Pensions (the Department) estimates that it underpaid 134,000 pensioners over £1 billion, with some of the errors dating as far back as 1985.
The errors happened because of the Department’s use of outdated systems and heavily manual processing, coupled with complacency in monitoring errors and a quality assurance framework that is not fit for purpose. In January 2021, the Department started an official exercise to correct the errors, the ninth such exercise for the Department since 2018. Some of those affected have died since the Department made the underpayments, meaning that the Department owes the pensioners’ estate.
It is difficult for pensioners potentially affected to know what to do. The Department has set little guidance for people who are concerned that they have been underpaid and has left people in the dark over their entitlement. It will only contact pensioners if it finds they have been underpaid and, as the Department is prioritising living pensioners, there is currently no formal plan for contacting the next of kin where the pensioner is now deceased. The Department also admits that many other pensioners are underclaiming their State Pension and need to contact the Department to receive an uplift to their payments. These pensioners need clearer information to act, or risk missing out on significant sums.
Fixing the Department’s mistakes comes at great cost to the taxpayer and is expected to cost £24.3 million in staff costs by the end of 2023. It requires experienced specialised staff who must be moved away from business-as-usual activity and, as a result, the Department has already experienced backlogs in processing new State Pension applications. There remains a risk that the errors that led to underpayments in the first place will be repeated in the correction exercise.
Managing Public Money requires Departments who make mistakes to put them right and restore people as far as possible to the situation they would have been in had the error not occurred. However, the Department is seeking only to pay people their legal entitlement in arrears, in some cases many years after the event, and has treated people inconsistently in paying interest on their arrears. Apart from the tax treatment of a lump sum arrears payment, the Department has, until recently, had little understanding of or interest in finding out further about the financial consequences for pensioners, such as the impact on social care provision.
What the government said
The government responded on 28 April 2022. The deadline was 21 March 2022.
The government states that it agrees with most of the Committee's recommendations, describes them as implemented, but disagrees with the recommendation on lump sum arrears and rejects some of the Committee's conclusions.
- On IT and administration, the government agrees with the recommendation and cites the "Get your State Pension" service, with 60% of online new claims processed and paid without manual intervention as at January 2022.
- On information for people who may have been underpaid, the government agrees with the recommendation but "rejects the Committee's conclusion". It will update Gov.uk by Summer 2022 to give a more direct route for enquiries about deceased customers.
- On lump sum arrears, the government disagrees with the recommendation and states that it "does not intend to change the current legislative position". Arrears will be reduced to take account of Pension Credit that would not have been paid had the State Pension been paid on time.
- On interest and compensation, the government agrees with the recommendation to explain its position, but states it decided "not to pay interest or further compensation", following the approach used in previous LEAP exercises.
Read the government's response ↗ Read the report ↗ Report an error
How the inquiry ran
Each dot is a dated item listed on this page, from the inquiry's opening on 21 September 2021 to 28 April 2022. The dashed mark is the deadline Parliament records for the government's response.
- Oral evidence 28 Oct 2021
- Report 21 Jan 2022
- Government response 28 Apr 2022
- Correspondence 3 letters
What it recommended 6 recommendations · 16 conclusions
2The Department’s complacency about the level of underpayments inherent in its approach to administering State...
3The Department has not given people who are worried they have been underpaid enough information...
4Correcting the State Pension underpayments comes at a great cost to the taxpayer and requires...
5The Department has not been sufficiently transparent to Parliament about the State Pension underpayments.
6In paying pensioners, a lump sum of their arrears, the Department may not be fully...
7Given the nature of the underpayments identified there must be a risk that similar, unidentified...
1On the basis of a report by the Comptroller and Auditor General, we took evidence...
8In addition, the customer information contained in the legacy system is difficult to obtain, taking...
9We challenged the Department on the adequacy of its quality assurance mechanisms.18 Despite the complexity...
10The Department told us it changed its quality assurance framework over the LEAP exercise and...
11When we asked the Department what positive assurance it obtained that the system was working...
12A Legal Entitlements and Administrative Practices (LEAP) exercise is a systematic review of cases at...
13The Department began a LEAP exercise for State Pension underpayments in January 2021, which was...
14The Department currently has just over 200 people conducting the LEAP exercise.
15We asked the Department about the findings of the NAO financial audit of the Department’s...
16The Department decided to contact pensioners reviewed as part of the State Pension LEAP exercise...
17When we asked if the Department is able to provide greater clarity to those who...
18Until recently, the Department did not keep records on pensioners for more than four years...
19The Department told us that it began exploring the potential for underpayments from April 2020,...
20Managing Public Money (A4.14) states that ‘when public sector organisations have caused injustice or hardship...
21Some of those who contacted the Department prior to the LEAP exercise starting in January...
22Since our evidence session Sir Steve Webb has also drawn our attention to a potential...
Evidence
Oral evidence sessions 1
- 28 Oct 2021Underpayments of the State Pension3 witnesses, listed belowparliament.uk ↗
Who gave evidence 3 witnesses
- Amanda ReynoldsDirector General Strategy and Transformation, Department for Work & Pensions
- Cathy PayneDeputy Director for State Pensions and Service Excellence, Department for Work & Pensions
- Peter SchofieldPermanent Secretary, Department for Work and Pensions
Correspondence 3 letters
- 25 Apr 2022Joint correspondence from Rt Hon Stephen Timms, Chair, Work and Pensions Committee and Dame Meg Hillier, Chair, Public Accounts Committee, re State Pension Underpayments, dated 20 April 2022
- 14 Dec 2021Correspondence from Sir Steve Webb, Partner, LCP, re State Pension Correction Exercise, dated 7 December 2021
- 23 Nov 2021Correspondence from Peter Schofield CB, Permanent Secretary, Department for Work and Pensions, re inquiry into underpayments of State Pension, dated 15 November 2021