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

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

The DWP has been accused of not showing a ‘light interest’ to help women who suddenly receive large backpayments. This could have negative consequences such as cuts in benefits or financial assistance for care bills. 

Today’s report reveals that Steve Webb and This Is Money were responsible for discovering cases where women are underpaid.  

MPs allege that the DWP failed to recognize this issue until August the following year and therefore missed an opportunity to fix it sooner.

Estimated 134,000 women were denied state pension increases or payments after their husbands turned 80 or passed away, when state pension age reached or they died.

The figure excludes women whose husbands are born after 17 March 1943. They must make proactive claims to DWP. 

Members of the powerful public accounts committee made a string of serious allegations against the DWP. They included claims that it complacency caused the death of pensioners and was responsible for recent delays in the processing new state pension claims.

This week, Money reports on another service crisis that saw people face long delays and even hardships while trying to get their payments started. 

Following a separate investigation conducted by the National Audit Office, the MPs report reveals that many families who lost their state pension may never receive a penny. 

>>>Have you been underpaid state pension? Learn more

Dame Meg Hillier, MP, chair of the public accounts committee, said today that DWP relied for decades on a state-funded pension system. This was cumbersome and required employees to access many databases. Now, some pensioners as well as taxpayers are contributing in large amounts.

“Departments making errors due to maladministration have the duty of putting those they wronged back where they belong, and without exception.

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

“Unknown numbers of pensioners lost their rightful dues and there’s no plan in place to reimburse their estates.

Hillier says that taxpayers are paying tens to millions to divert specialized staff to solve the problem. This is in addition to causing delays in new pension claims and other unforeseen consequences. However, there’s no guarantee that mistakes will be made in correction exercises.

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’

She says, “This is shameful chaos.”

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 was accused of relying over the decades on IT systems which aren’t fit for purpose. It also faces accusations of “a fundamental control problem” when it comes to paying pensioners their dues.

Steve Webb is a retired Pensions Minister and now a Partner at LCP Pension Consultants. He says that today’s statement by the committee was correct in being highly critical of DWP during this entire 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 salute the fact that this committee has pointed out that divorced women are excluded from this exercise. And I ask the Government for more help to ensure these women get their pensions checked.

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

“There is still far too much people not getting the state pensions to which they are entitled, so the DWP should urgently track down all of them.”

A spokesperson from the DWP said that, “Resolving historic state pension underpayments which have been made successively by governments is a priority of the Department and we are dedicated to doing this as soon as possible.”

“We’ve established a team to handle outstanding cases. We have also introduced new quality control methods and enhanced training to make sure this never happens again.

We will contact the affected parties to make sure they get all they are due.

‘We are carefully considering the content of the Public Accounts Committee’s report and will respond formally in due course.’ Below, you can find out more about how the DWP has been putting things together.

These points were also included in the public accounts committee’s report.

DWP used outdated software and manual processes to create errors. Over years, small errors that were not recognized each time could add up to large sums of cash.

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

DWP needs to determine how much backpayments will affect pensioners and obtain assurances that local authorities won’t treat them unfairly for not receiving their funds at the appropriate time.

‘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.’

HMRC stated that income tax would be calculated on the state pension arrears, and not the years in which they are paid. 

DWP treated individuals inconsistently regarding the payment of interest on state pension backpayments. It used to do so, but then it stopped. The correction exercise was launched in January 2021.

The report states that “we don’t believe there’s a compelling reason to treat those within the scope of this exercise differently than those who contacted the Department before it.”

“With the underpayments dating back to 1985, the Department does not expect to restore pensioners to a state as if it never happened, according to the principles of Managing Public Money.

DWP has a tendency to prioritise living pensioners over the dead in its corrections exercise. However, some of the next-of-kin might be financial vulnerable.

MPs say that information regarding the next of kin is sometimes missing in certain cases and that there has not been a plan by the Department to track them down.

According to the report: The DWP didn’t give people concerned about underpaying enough information, which could lead to many missing out on their right to receive the money that they need.

According to the report, “The Department claims it can’t publish guidance for people who might have been underpaid,” such as an online assessment of the worthiness of a pensioner calling the Department regarding their pension. It believes that it doesn’t accurately address all underpayment scenarios.

However, it is stated that the DWP must improve transparency and access to information regarding state pension underpayments. It should also provide guidance on what individuals who are worried about this matter should do.

“This information should also include information that the Department is unable to reach, such as the nearest relatives of customers who have died,” it states.

Was there anything else the DWP has to say?

We will provide excellent service to our customers. We are constantly learning from mistakes and trying to improve.

We have improved our training and quality control procedures since we first became aware of the issue.

Formal correction is an important activity. It will involve cases of underpayments, some dating back to many years.

Final value of underpayments can only be determined by completing the Legal Entitlements and Administrative Practices (LEAP) exercise.

Due to the hundreds of thousands cases that must be assessed, we expect the correction work to be complete by the end 2023.

These errors are a top priority for the Department. We will do our best to resolve them as soon as we can. At first, resources will be prioritized on cases where an individual is still living, older cases and those most at risk.

This activity includes instances in which an individual has died. Arrears for this type of case may be paid to the relevant person/next-of-kin.

The correction activity does not include married individuals who are legally required to claim the Category BL uplift in their state pension. This is because the husband was entitled to it before the 17 March 2008 legislation changed. This group must file a claim for any Category B 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. If the law requires that they receive a lower state pension, then we will reach out to them.