Underpayments of the State Pension – Report Summary

This is a House of Commons Committee report, with recommendations to government. The Government has two months to respond.

Author: Committee of Public Accounts

Related inquiry: Underpayments of the State Pension

Date Published: 21 January 2022

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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 The errors happened because of the Department’s use of outdated systems and heavily manual processing, coupled with complacency in monitoring errors and a quality assurance framework that is not fit for purpose.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.