Pensions  

Govt bill to fix pension underpayments climbs £315mn

Govt bill to fix pension underpayments climbs £315mn

The Department for Work & Pensions has said the bill for fixing the volume of pensions underpayments has climbed from £1bn to £1.35bn since last year.

In its annual report published yesterday (July 7), the government department said the increase was down to the introduction of computerised scans to identify cases its staff needed to review.

Over the past year, the bill has grown £315mn, from £1.034bn to £1.349bn.

The department now estimates it has underpaid 237,000 state pensioners a total of £1.46bn, with underpayments dating as far back as 1985.

This is an increase of £429mn and of 105,000 pensioners on the department’s estimate at the end of 2020-21. 

The government said it has now conducted all the scans it needs to identify potentially affected cases, but will not know the full extent of the underpayments until it has fully reviewed every case.

The department, whose pensions minister Guy Opperman resigned this week following a turbulent few days in Westminster, aims to complete its review of state pension underpayments on schedule by the end of 2023 for two of the three affected groups.

However, this deadline will now not be met for the largest affected group - widowed pensioners. 

The department said the £1.35bn provision in the financial statements reflects its current assessment that the review and correction of all widowed pensioner cases “may take until late 2024”. 

It added: “A delay of this length would increase the total amount underpaid to pensioners by an estimated £14mn.”

The department cautioned that delivery of the review exercise is “highly dependent” on assumptions around recruitment, productivity, training, and the success of automation to speed up case review. 

It admitted it needs to “significantly increase” the speed at which it reviews cases to complete the review to its revised schedule.

Currently, around 510 civil servants are working on this project within the DWP. But earlier this week, Thérèse Coffey, the secretary of state for work and pensions, said the government intends to get this up to 1,500 civil servants by the end of the year.

In March, the DWP published its latest progress on state pension underpayments. It had paid £94.3mn. This was an increase on the 9,491 underpayments totalling £60.8mn it had identified by September last year.

The underpayments were to those who reached state pension age before 2016 and are entitled to further payments which should have been paid to them automatically, but were not.

A report from the National Audit Office published in September blamed “years” of “human errors” within the department, calling the billion-pound underpayment “inevitable” given DWP’s “high degree of manual review and complex rules”.

ruby.hinchliffe@ft.com