State pension underpayments: 134k pensioners owed £9k each in huge DWP error | Personal Finance | Finance

State pension payments are crucial for many retirees, with a number of pensioners being reliant on Government support. Unfortunately, thousands of pensioners found themselves with underpaid pensions in recent months and years and following an investigation into underpayments of state pensions from the NAO, further light has been shared on what caused the problems and what needs to be done to resolve them. According to the Comptroller and Auditor General’s report, the underpayment of pensions was due to repeated human errors.

“The Department’s caseworkers often failed to set (and later action) manual IT system prompts on pensioners’ files to review the payments at a later date, such as their spouse reaching state pension age or their 80th birthday. Caseworkers also often made errors when they did process prompts because frontline staff found instructions difficult to use and lacked training on complex cases.

“The Department’s approach of measuring, identifying and tackling the largest causes of fraud and error means it missed earlier opportunities to identify underpayments. It does not have a means of reviewing individual complaints or errors, such as how many people are complaining about the same issues, to assess whether the errors have a systemic cause. 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.”

In January 2021, the DWP began reviewing cases at risk of underpayment in a Legal Entitlements and Administrative Practices (LEAP) exercise. This exercise was originally expected to take over six years to complete, but following a ministerial decision to recruit additional staff, the DWP revised the completion date to the end of 2023.

The Government has committed to putting resources into this effort, as the DWP expects to increase the number of full-time staff working on the LEAP exercise from 184 in March 2021 to 544 by the end of January 2022, with the costs of these efforts to reach around £24.3million in staffing costs.

Between January 11 and September 5, the DWP reviewed 72,780 cases it had identified as being at risk of having been underpaid or who contacted it querying their payment, and paid £60.6million of arrears to 11 percent of these cases. The Government is prioritising individuals who fall into “at risk” categories, such as those who are widowed or over age 80.

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NAO warned the DWP may find it “particularly difficult to correct underpayments of pensioners who have died.” This could be made more difficult as it 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, and if married, their spouse’s death.

NAO concluded by noting that, as of August 2021, the DWP had not approved a formal plan to trace the estates of deceased pensioners.

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

Meg Hillier, the Chair of the Committee of Public Accounts, also said: “Many pensioners – most of whom are likely to be women – have been short-changed by thousands of pounds which they are still yet to receive many years later. 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.”

Steve Webb, a partner at Lane Clark & Peacock LLP and former Pensions Minister, also noted the NAO report highlighted two groups who are not yet included in the 134,000 total, including some “who never will be”.  According to Mr Webb, these are:

  • Widowers (and some widows) on a full basic pension, but who were never awarded the inherited “additional” (SERPS) state pension they should have received; according to p46 of the report “pensioners where additional pension.. may be inherited where the individual had the full basic state pension component already were excluded” and will only be picked up in a November 2021 scan; this means that there are potentially thousands more widowers and widows owed millions of pounds who have not so far been counted;
  • Those who died (and whose spouse also died) more than four years ago;  the NAO report says that records for the deceased are destroyed after four years, so this group will never be identified unless families hold DWP paperwork or bank statements before this date and come forward to claim.

Mr Webb concluded: “This report highlights the fact that DWP failed to act over a period of many years when errors were found in state pension assessments. Tens of thousands of married women, widows and the over 80s have been underpaid, with arrears in some cases exceeding £100,000. It is very worrying that errors are still being made as part of the correction exercise, where the highest standards of quality control should be in force.

“DWP also needs to do everything it can to track down the families of pensioners who have sadly died and never received the pension they were due. We now need full transparency from DWP about the correction process, with regular updates and a full explanation of exactly which cases are being reviewed. It should also explain how these errors were allowed to go on for so long and what lessons have been learned. There also needs to be a clear plan to help families where the person who was underpaid died more than four years ago where DWP no longer holds records.”

Sarah Pennells, Consumer Finance Specialist at Royal London, also said: “The number of women affected and the amount underpaid are eye-watering. Women are more likely to rely on their state pension in retirement. So the fact that many thousands have missed out on money that’s rightfully theirs, because of mistakes and a complex system, is heartbreaking.”

“Although the new state pension is designed to be simpler, it is not straightforward for everyone. People currently working will have built up some of their state pension entitlement under the old system, pre April 2016, and some under the new system. If they were contracted out of National Insurance, because they were in a final salary pension scheme, some of their state pension will be paid by their workplace pension – which they may not be expecting. The state pension may be universal, but it is far from universally understood. For those who need further guidance and support, the Money and Pensions Service is a good place to start.”

Andrew Gwynne, the Labour MP for Denton and Reddish, recently pushed the Government to address the delays and in response, Mr Opperman said: “The department is working hard to clear backlogs which have occurred by reason of the Covid pandemic and staffing issues which have now been rectified.

“Normal service will be resumed by the end of October 2021.” Under the current rules, new state pensions can be claimed by those who reach their state pension age, which is currently sitting at 66 for most people.

However, the Government will be increasing this age to 67 between 2026 and 2028. Beyond this, it will rise to 68 by 2046.

To be eligible for a state pension, a person will need to have paid at least 10 years worth of qualifying National Insurance contributions. At least 35 years will be needed for the full payment of £179.60 per week.

Claims for state pensions can be made up to four months ahead of reaching one’s state pension age. These claims can be made online, over the phone or through the post.

So long as they’re claimed, initial payments should arrive within five weeks of reaching the state pension age. Payments will then arrive once every four weeks.

In response to the NAO’s findings, 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.”

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