UK pensioners short-changed by more than £1bn, says watchdog

More than £1bn-worth of UK state pensions has been underpaid due to repeated human errors that were almost inevitable amid complex rules and outdated IT systems, a spending watchdog has said.

The Department for Work and Pensions (DWP) estimates it underpaid 134,000 pensioners, and those it can trace will be paid an average of £8,900, the National Audit Office (NAO) said.

Most of those affected are likely to be women and the true value of the underpayments will only become clear once the DWP has completed its review of all cases, the watchdog added.

An estimated £339m will go to pensioners who should have benefited from their spouse’s or civil partner’s national insurance (NI) record; £568m to widows and widowers who should have inherited more state pension entitlement from their deceased partner; and £146m to pensioners who should have had an increase in their pension on their 80th birthday.

Meg Hillier, the chair of the committee of public accounts said: “Although it is positive that DWP is now working to put this right, this is not the first widespread error we have seen in DWP in recent years. Correcting these errors comes at great cost to the taxpayer.

“DWP must provide urgent redress to those affected and take real action to prevent similar errors in future.”

The errors affect pensioners who first claimed state pension before April 2016, do not have a full NI record, and should have received certain increases in their basic state pension.

They were brought to the department’s attention by individual pensioners, concerned experts and the media, the NAO said.

The DWP started exploring the “potential for error” from April 2020 and in August 2020 confirmed that there was a significant issue. It started to review cases from January 2021 and said it would contact pensioners if it found they had been underpaid.

Errors happened because state pension rules were complex, IT systems outdated and not automated, and the administration of claims required a high degree of manual review and understanding by caseworkers, the NAO said.

“This makes some level of error in the processing of state pension claims almost inevitable,” it added.

Caseworkers often failed to set and later action manual IT system prompts on pensioners’ files to review payments at a later date, such as for when people reached state pension age or their 80th birthday, it said.

Frontline staff found instructions difficult to use and lacked training on complex cases, according to the findings.

Quality assurance processes focused on checking changes to case details, such as a change of address or the death of a spouse, rather than the overall accuracy of the payments, the NAO continued.

In January 2021 the DWP started reviewing cases at risk of underpayment – an exercise originally expected to take more than six years to complete. After a decision to recruit additional staff, the department revised the completion date to the end of 2023.

Between 11 January and 5 September this year, the department reviewed 72,780 cases it had identified as being at risk of having been underpaid or who contacted it querying their payment, and paid a total of £60.6m of arrears to 11% of these cases.

The department is prioritising individuals who fall into “at-risk” categories, such as those who are widowed or over 80.

The department does not know how many pensioners who have died have been underpaid as, for data protection reasons, it does not usually keep records for more than four years after a pensioner’s death or, if married, their spouse’s death, according to the report.

As at August 2021, the department had not approved a formal plan to trace the estates of deceased pensioners.

Gareth Davies, the head of the NAO, said: “The impact of the underpayment of state pension on those pensioners affected is significant. It is vital that the Department for Work and Pensions corrects past underpayments and implements changes to prevent similar problems in future.”

The report said Sir Steve Webb, a former pensions minister, and ThisIsMoney.co.uk had provided the DWP with examples of underpayments.

Webb, who is a partner at consultancy LCP (Lane Clark & Peacock), said the DWP needed to explain how these errors were allowed to go on for so long and what lessons had been learned.

A DWP spokesperson said: “We are fully committed to ensuring the historical errors that have been made by successive governments are corrected, and as this report acknowledges, we’re dedicating significant resource to doing so. Anyone impacted will be contacted by us to ensure they receive all that they are owed.

“Since we became aware of this issue, we have introduced new quality control processes and improved training to help ensure this does not happen again.”