Recommendation 4

DWP and HMRC face a significant challenge in making back payments to people who have been underpaid State Pension due to missing Home Responsibilities Protection. In 2021–22, DWP identified underpayments of State Pension due to gaps in the National Insurance records of people who were historically entitled to a benefit called Home Responsibilities Protection (HRP). DWP now estimates that 210,000 people may have been underpaid some £1.3 billion, going back decades. This is in addition to the underpayment of £1.2 billion affecting 165,000 pensioners due to historical errors by DWP that we reported on last year. We are very concerned that DWP has found another systemic underpayment, potentially leaving hundreds of thousands of pensioners out of pocket by an average of £5,000. HM Revenue & Customs (HMRC) administers National Insurance records and told us it will be very difficult to identify people who have been impacted because it no longer holds the relevant records. It plans to contact people it thinks may be affected and invite them to make a claim for HRP. It will then correct the National Insurance record so DWP can pay back any missing State Pension. HMRC confirmed that any back payments may be subject to a tax charge, but it has not decided how it will deal with this. Neither DWP nor HMRC were able to tell us when this issue will be fully corrected. Recommendation 4: a) DWP should work with HMRC within the next six months to set out a clear plan and timetable for correcting underpayments of State Pension relating to Home Responsibilities Protection and provide clarity on how any tax issues will be dealt with. The Department for Work & Pensions Annual Report and Accounts 2022–23 7 b) DWP and HMRC should regularly publish updates on their progress correcting this issue. This should include key numbers such as the volume of cases identified as at risk, the number of people asking for a review of their case, and the value of payments made.