Source · Select Committees · Public Accounts Committee
Recommendation 16
16
Accepted
Historical State Pension underpayments caused by missing Home Responsibilities Protection have re-emerged despite previous efforts.
Recommendation
When we examined DWP’s 2021–22 accounts, it told us about another category of historical State Pension underpayment caused by gaps in the National Insurance records of women who had previously claimed Child benefit.29 DWP and HMRC explained to us that between 1978 and 2000, people claiming Child Benefit should have automatically received Home Responsibilities Protection (HRP), which lowered the National Insurance contributions needed to receive a full State Pension.30 Up until 2000, the body responsible for Child Benefit did not record a National Insurance number as part of a claim. This led to missing periods of HRP on the National Insurance records of some women and thus an underpayment of State Pension, which is calculated based on National Insurance contributions.31 This is not the first time that DWP has encountered an issue with missing periods of HRP. In 2010–11 DWP worked with HMRC to pay £84 million in arrears to pensioners for the same issue.32 DWP admitted that it was “assumed that the situation had been addressed and solved”.33
Government Response Summary
The government agrees to the recommendation, stating the correction exercise for Home Responsibilities Protection underpayments began in Autumn 2023 and will continue to be refined by DWP and HMRC, providing clarity on tax treatment for arrears.
Government Response
Accepted
HM Government
Accepted
4a. PAC recommendation: 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. 4.1 The government agrees with the Committee’s recommendation. Target implementation date: Summer 2024 4.2 The department provided details of the scope of the exercise and plans to address outstanding work in its 2022-23 Annual Report and Accounts. The 2022-23 Annual Report and Accounts also sets out that there is a degree of uncertainty with the number of people affected and the total amount of pension arrears. The correction exercise began in Autumn 2023. The department will continue to refine its plans and timetable alongside HM Revenue & Customs (HMRC) as the exercise progresses. The department will provide updated details of its plans in its 2023-24 Annual Report and Accounts. 4.3 Income tax will be calculated on the arrears payments of State Pension for the tax year in which the customer was entitled to receive the State Pension, not in the year in which the arrears were paid. HMRC will only collect tax for the year that arrears are paid and the preceding four years. HMRC will not collect income tax on any arrears payments where the individual is deceased, and payment was made after the date of death. HMRC will not raise historical interest charges on the tax due from Self-Assessment customers.