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‘Shameful shambles’ of underpayment of state pensions

Written by: Emma Lunn
A committee of MPs has branded the long-term underpayment of state pensions to about 134,000 pensioners, mostly women, a ‘shameful shambles’.

The Public Accounts Committee (PAC) said the Department for Work and Pensions (DWP) has underpaid pensioners by more than £1bn in mistakes dating as far back as 1985.

In January 2021, DWP started an official exercise to correct the errors, the ninth such exercise since 2018. The errors mostly affect widows, divorcees and women who relied on their husband’s pension contributions for some of their pension entitlement.

The mistakes happened because of the DWP’s use of outdated systems and heavily manual processing. Small errors that were not recognised each time added up over years to significant sums of money.

The DWP is only paying those it has identified as having a legal entitlement to arrears, in some cases many years after the event, and has been inconsistent in paying interest. The PAC said the department “has shown little interest in understanding the further knock-on consequences, including on social care provision, for those it underpaid”.

There is currently no formal plan for contacting the next of kin where a pensioner who was underpaid is now deceased.

Fixing DWP’s mistakes itself comes at great cost to the taxpayer, expected to cost £24.3m in staff costs alone by the end of 2023. Staff have been moved away from their normal jobs to deal with the underpayments and as a result DWP is experiencing backlogs in processing new applications.

The risk remains that the errors that led to underpayments in the first place will be repeated in the correction exercise, if not also in new claims.

Dame Meg Hillier MP, chair of the Public Accounts Committee, said: “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.

“DWP is now on its ninth go at fixing these mistakes since 2018, the specialised staff diverted to fix this mess costing tens of millions more to the taxpayer and predictable consequences in delays to new pension claims. And there is no assurance that the errors that led to these underpayments in the first place will not be repeated in the correction exercise.

“This is a shameful shambles. The PAC expects DWP to set out the step changes it will make to ensure it is among their last.”

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