Pensioners have been short-changed by more than £1bn. DWP must provide urgent redress to those affected
Thousands of pensioners, mainly women whose pension is affected by or calculated on the basis of their husbands’ pensions, have been losing out on state pension benefits, leaving some owed considerable sums of money.
The monitoring approach adopted by the Department for Work and Pensions (DWP) to catch mistakes was geared up to tackle only the largest risks of fraud and error. It meant pensions underpayments were not picked up, as the individual errors were small enough to fly under the radar.
The latest estimate is that the DWP has underpaid around 134,000 pensioners more than £1bn, with errors going back as far as 1985. Around 90 per cent of those affected are women, which is a result of the types of pension payments involved. Of the 134,000, around 40,000 people have died before receiving the money they were owed, and DWP does not think it can trace the next of kin for around 15,000 deceased pensioners.
Of the 118,000 pensioners it can trace, DWP estimates the average repayment could be £8,900. So far, DWP has found individual underpayments of between £0.01 and £128,448.37.
The issues which led to the underpayments have been brewing for many years. Pension rules are complicated, meaning only a handful of people fully understand the intricacies. DWP also uses a number of IT systems which are old and don’t “talk” to each other. It means pension records require a great deal of manual review.
The errors only came to light when pensioners began contacting the DWP, and the issue was taken up by former pensions minister Sir Steve Webb and ThisIsMoney.co.uk journalist Tanya Jefferies.
There is a risk that government may give with one hand but take with the other
The task of identifying and repaying those people affected will take years to resolve. The age of the IT systems and complexity of pension rules resulted in a number of errors in DWP’s correction exercise. The DWP told the Public Accounts Committee it had made improvements, yet some errors when reviewing cases were still being made.
Until recently, data was only held for four years after death, making restitution impossible without individuals’ personal records. The process to identify and calculate repayments will cost more than £24m, involve more than 500 staff, and take around three years.
The repayment amounts themselves raise a number of unresolved questions. It is still not clear why the repayments do not include inflation increases. These could be significant given that some underpayments go back over 30 years (and tax rebates include interest payments). Pensioners who contacted DWP before January 2021 received compensation on top of their repayment, yet the DWP decided not to pay compensation to those who got in contact after this date.
There is a risk that government may give with one hand but take with the other. A lump sum repayment may affect a pensioner’s entitlement to other benefits, such as housing or social care. However, DWP has said it is the pensioner’s responsibility to inform local authorities of the change, and local authorities themselves will decide whether the repayments affect other benefits. The tax implications are also complex, with HMRC stating income tax is calculated on when the pensioner was entitled to receive it, rather than the year in which a lump sum is paid.
There has been a lack of co-ordination between DWP, HMRC and local government on how repayments will affect other benefits or taxes. Pensioners and their families have suffered enough, so it’s vital they receive their repayments quickly, are properly informed of the process, and are not overburdened with additional paperwork as a result of the money they’re rightly owed.
The Public Accounts Committee will publish its report in January.
Get the inside track on what MPs and Peers are talking about. Sign up to The House's morning email for the latest insight and reaction from Parliamentarians, policy-makers and organisations.