Today (September 22) the National Audit Office published a report blaming the government department for “years” of “human errors” which resulted in 134,000 pensioners - 90 per cent of which are understood to be women - being underpaid state pension entitlements.
The failings, traced back as far as 1985, went on for long enough that 40,000 pensioners have likely died before receiving any compensation. A further 15,000 have been branded untraceable by the government.
The NAO’s findings have sparked outrage across the industry. Steve Webb, the former pensions minister who helped DWP identify these underpayments last year, said “the most distressing thing of all” was the fact the department was still making errors during the correction process earlier this year.
“You’d think these were horrors from a bygone era,” he told FTAdviser.
“There’s clearly not enough quality assurance, and recommendations around plans for people who have died have still not been worked out.”
The NAO said in its report DWP has since “strengthened its governance and quality assurance” over the process. “But it is likely that at least some errors remain, especially over more complex cases,” it concluded.
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.”
One woman approached Webb last summer, suspecting she was short on her state pension payments. She sent a letter to DWP last summer. The department replied saying her pension payments by the state were correct.
Webb was sure this wasn’t the case, so reached out to the UK’s current pensions minister Guy Opperman.
The department then said the woman was owed “more than double” the pension she had been paid. She was retroactively paid £30,000 to compensate for the mistake.
“This report found 130,000 cases of underpayments,” said Webb. “There must have been people who rang up and asked for pensions to be corrected. But no-one in DWP thought to say ‘why are all these people calling up?’”
Webb also highlighted the fact that as soon as the spouse of a deceased retiree dies, a four year clock starts ticking until DWP delete their records.
Unless children can prove their parents were underpaid according to bank statements - which many banks retrieve after a customer passes - cases such as this will be hard to prove.
“It’s a battle and it won’t be easy to win,” said Webb.
‘Decades’ of lost confidence
Tom Selby, head of retirement policy at AJ Bell, called the £1bn underpayment “nothing short of a national scandal”.
He continued: “The fact pensioners, some of whom will have been struggling to make ends meet, have been underpaid state pensions to the tune of £1bn is nothing short of a national scandal.
“Tragically, of the 134,000 people underpaid, around 40,000, are estimated to have died before being compensated.
“Furthermore, those lucky enough to still be with us may have been living in penury when they should have been enjoying their retirement.”
Selby said once compensation has been paid, the government should undertake a comprehensive review of its processes to ensure these mistakes “are never” repeated.
“Trust in pensions is fragile at the best of times and failures such as this will not help,” said Selby.
“Sadly, it will likely take years, if not decades, to rebuild the confidence lost as a result of this scandal.”
Andrew Tully, technical director at Canada Life, agreed the report was “damning” for the DWP.
He continued: “The UK state pension forms the bedrock of millions of retirees' plans so we all need confidence in the system to not only pay up when due but also accurate amounts people can rely on.
“Unfortunately over the years the system has become increasingly complicated so it was almost inevitable big errors would creep in, and it makes it very difficult for people to double-check the amount they are receiving is correct.
“Optimistically, and looking ahead, with the introduction of the flat rate system, hopefully many of these errors won’t occur in the future.”
Women have ‘missed out’
Under the old state pension system, married women could claim a basic state pension at 60 per cent of the full rate based on their husband's contributions, assuming this would be a greater amount than the pension they would receive from their own contributions.
Since March 17, 2008, this uplift should have been applied automatically. Prior to this date, a married woman had to make a 'second claim' to have her state pension increased when her husband turned 65 - and many women did not make such claims.
This is why DWP’s failings have disproportionately impacted women by as much as 90 per cent compared to men.
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, highlighted the disproportionate impact the department’s failings have had on women.
“A combination of manual error and a complex system means thousands of women have missed out on payments that could have made a real difference to their standard of living in retirement,” she said.
“Many of these women had no idea that they were even entitled to a higher pension and so did not ask about it and while the DWP has begun making repayments it is likely going to take some time before all those affected have been identified.”
ruby.hinchliffe@ft.com
