State pension scandal is a 'shameful shambles', say MPs


Probe by MPs: Tens of thousands of women have been underpaid state pension in a £1billion scandal

Probe by MPs: Tens of thousands of women have been underpaid state pension in a £1billion scandal

MPs have condemned a ‘shameful shambles’ at the Department for Work and Pensions after a probe into the £1billion state pension scandal.

They accuse the DWP of showing ‘litte interest’ in helping women suddenly receiving large backpayments with the knock-on effects, like cuts to benefits or financial assistance with care bills. 

This is Money and our columnist Steve Webb are named in the report published today as responsible for uncovering cases of women being underpaid in January 2020.  

MPs say the DWP did not consider this to be a significant issue until the following August, so it missed opportunities to identify and resolve the problem sooner.

An estimated 134,000 women were deprived of state pension rises or payments when their husbands reached state pension age or died, or when they themselves reached the age of 80.

That figure does not include women whose husbands were born before 17 March 1943, who need to make proactive claims to the DWP. 

MPs on the influential public accounts committee level a series of damning allegations at the DWP, including that its complacency failed pensioners, and the fallout is behind recent backlogs in new state pension claims.

This is Money reported again this week on a service meltdown that has seen people suffer long delays, and in the worst cases hardship or hunger while trying to get payments started. 

The MPs’ report follows a separate investigation by the National Audit Office which revealed many bereaved families whose relatives lost out on state pension in the past might never see a penny. 

>>>Have you been underpaid state pension? Find out what to do here

Public accounts committee chair, Dame Meg Hillier MP, says today: ‘For decades DWP has relied on a state pension payment system that is clunky and required staff to check many databases – and now some pensioners and the taxpayer are paying in spades.

‘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.’

Hillier adds that the diversion of specialised staff to fix the mess is costing taxpayers tens of millions of pounds, and causing ‘predictable consequences’ in delays to new pension claims, while there is no assurance that errors will not be repeated in the correction exercise.

Megg Hillier MP: ''In reality DWP can never make up what people have actually lost, over decades, and in many cases it¿s not even tryin

Megg Hillier MP: ‘In reality DWP can never make up what people have actually lost, over decades, and in many cases it’s not even trying’

‘This is a shameful shambles,’ she says.

Her fellow member, Peter Grant MP, writes today in This is Money: ‘Even from a committee that’s no stranger to giving Government departments a hard time, this is a blistering report. 

‘The DWP is accused of relying for decades on IT systems that are not fit for purpose; of “a fundamental control failure” in its key task of paying people the pensions they are due; of failing pensioners through its own complacency; and of a lack of transparency to Parliament about the scale of the underpayments.’

Steve Webb, a former Pensions Minister who is now a partner at pension consultant LCP, says today: ‘The committee are right to be highly critical of DWP over this whole debacle.

‘It is shocking that DWP’s regular checks regarded the level of error on state pensions as too small to be worth investigating when in reality many thousands of people have missed out on potentially life-changing amounts of money.

‘I welcome the fact that the committee has highlighted the fact that divorced women have so far been excluded from this exercise and I call on the Government to do more to ensure that these women also have their pensions checked.

DWP pays £17k to 73-year-old divorced woman 

Find out what to do if you are divorced and think you are not getting the right state pension here. 

‘DWP’s defensive reaction to questions and scrutiny over this issue suggest that lessons have still not been learned.

‘There are still far too many people missing out on the state pension to which they are entitled and DWP needs to track them all down as a matter of urgency.’

A DWP spokesperson said: ‘Resolving the historical state pension underpayments that have been made by successive governments is a priority for the Department and we are committed to doing so as quickly as possible.

‘We have set up a dedicated team and devoted significant resources to processing outstanding cases, and have introduced new quality control processes and improved training to help ensure this does not happen again.

‘Those affected will be contacted by us to ensure they receive all that they are owed.

‘We are carefully considering the content of the Public Accounts Committee’s report and will respond formally in due course.’ Read more about what the DWP is doing to put things right below.’

The public accounts committee report also made the following points.

– Errors were due to the DWP’s use of outdated systems, which are not fit for purpose, and heavily manual processing. Small errors not recognised each time added up over years to significant sums of money.

The correction exercise is expected to cost £24.3million for staffing alone by the end of 2023.

– The DWP should establish the full impact on pensioners of receiving a backpayment, and seek assurances from local authorities that it will not treat them prejudicially because they didn’t receive their money at the right time.

Have YOU received a state penson backpayment? 

Read more here about what tax you might have to pay, and the possible impact on benefits and help with care costs. 

‘The payment of a lump sum of arrears may affect the pensioner’s current or future entitlement to other benefits such as pension credit, housing benefit or social care provided by local authorities,’ says the committee.

‘The Department has demonstrated little interest in accounting for financial consequences of receiving a lump sum in its pensions reassessment and considers it to be the pensioner’s responsibility to advise the relevant authority should their circumstances and eligibility for benefits change.’

The committee notes that HMRC has said income tax will be calculated on state pension arrears for the tax year in which the pensioner was entitled to receive it, not in the year in which it is paid. 

– The DWP has treated people inconsistently over paying interest on state pension backpayments, because it used to do this and then stopped when it launched a correction exercise in January 2021.

‘We do not think there is a convincing justification for treating those in scope of the exercise differently to those contacting the Department prior to it,’ says the report.

‘With underpayments going as far back as 1985, the Department is unlikely to be restoring the pensioners to a position as if the issue never occurred, as would be expected according to the principles of Managing Public Money.’

– The DWP has so far prioritised living pensioners rather than the deceased in the correction exercise, even though some of their next of kin may be financially vulnerable.

‘In some cases, information on next of kin of the deceased is missing, and the Department still does not have a plan to trace them,’ say MPs.

– The DWP has not given people worried about being underpaid enough information on what to do, creating the risk many may miss out on money they should receive, according to the report.

‘The Department maintains it cannot publish guidance for those who may have been underpaid, such as an online assessment of whether it is worth a pensioner contacting the Department about their pension, because it believes it cannot accurately cover all possible underpayment scenarios,’ says the report.

STEVE WEBB ANSWERS YOUR PENSION QUESTIONS

       

However, the committee says the DWP should improve the clarity and availability of information on state pension underpayments, and what people who are concerned about it should do.

‘This should include information for groups the Department finds hard to reach such as the next of kin of deceased customers,’ it adds.

What else does the DWP say?

– We are committed to delivering an excellent level of service, ensuring the right outcome for our customers. The Department is continuously learning and improving from situations where errors happen.

– 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.

– The formal correction activity we are progressing is a significant undertaking and will include cases of underpayments that date back many years.

– The final total value of the underpayments will only be confirmed by the completion of the Legal Entitlements and Administrative Practice (LEAP) exercise.

– We expect to complete the correction work by the end of 2023 as it requires an assessment of hundreds of thousands of cases.

– Resolving these errors is a priority for the Department and we are committed to doing so as quickly as possible. We are initially prioritising resources on cases where the individual is alive, on older cases, and cases who are likely to be the most vulnerable.

– The activity will include instances where an individual has passed away. Arrears in this case can be paid to the appropriate individual/next of kin.

– Married individuals legally required to make a claim for the (Category BL) uplift in state pension because their husband became entitled to his state pension prior to the legislation change on 17 March 2008 are not part of the correction activity. These individuals need to make a claim for any Category BL top up.

[This refers to married women whose husbands reached state pension age before uplifts became automatic, and may only receive a one-year backpayment except under certain circumstances. Read more here about what to do.] 

– Those whose husband became entitled to their state pension on or after 17 March 2008 don’t need to take any action. We will contact them if they have been underpaid state pension in accordance with the law.

TOP SIPPS FOR DIY PENSION INVESTORS

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