The DWP confirmed today (November 28) that between January 2021 and October this year it had paid £200mn to 31,817 state pensioners who had been paid less than they were entitled to.
This is less than a quarter of the total £1.46bn the DWP estimates it has underpaid 237,000 pensioners, most of which are women.
Some of the errors date as far back as 1985.
Tom Selby, head of retirement policy at AJ Bell, said it is “absolutely critical” that all those affected by this “scandal” receive the money they are owed as quickly and efficiently as possible.
“For retirees on low incomes preparing for a cold winter, a cash windfall worth thousands of pounds could prove a lifeline after years surviving on an artificially low income due to the DWP’s errors,” he said.
Once compensation has been paid, the government needs to undertake a comprehensive review of its processes to ensure these mistakes are never repeated, he added.
“Trust in pensions is fragile at the best of times and failures such as this will not help.
"Sadly, it will likely take years, if not decades, to rebuild the confidence lost as a result of this scandal.”
Steve Webb, partner at LCP, said the scale of these underpayments is so great that putting it right may take five years.
Between February last year and October this year, the DWP’s ‘run rate’ has been 2,000 payments per month, he said, and even if that was increased to 3,000 it would take another five or more years to finish the job.
“It is quite shocking that well over a hundred thousand pensioners are to this day receiving the wrong rate of pension, and the DWP is clearly way behind schedule in fixing the problem,” he said.
DWP progress on identifying underpayment of state pensions
Category | Cases reviewed | Underpayments identified | Average arrears payment | Total amount repaid |
Married (Cat BL) | 62,965 | 13,157 | £6,929 | £91.1 million |
Widowed | 25,268 | 7,876 | £10,772 | £84 million |
Over 80 (Cat D) | 23,720 | 10,784 | £3,172 | £34.2 million |
Source: DWP
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown said women retiring under the old basic state pension are primarily affected.
“They will have had an expectation their state pension would be paid correctly and due to an overly complex system this has not happened on a huge scale with many women enduring financial distress as a result," she said.
“Many queried discrepancies with DWP but were told there was no issue – they will be feeling very let down and many will have died without receiving what they were entitled to.
“The DWP has a gigantic task ahead of it to resolve these issues and it must pull out all the stops to make sure it happens as soon as possible.”
A DWP spokesperson said: “The action we are taking now will correct historical underpayments made by successive governments. We are fully committed to addressing these errors, not identified under previous governments, as quickly as possible.
"We have set up a dedicated team and devoted significant resources towards completing this, with further resources being allocated throughout 2023 to ensure pensioners receive the support to which they’re entitled."
Pension errors
The errors in pension payments were laid out in a report by the National Audit Office last year, which blamed “years of human errors” within the DWP as the reason for the issue.
The department itself blamed two sources for the error.
One was its caseworkers, who sometimes failed to manually set and later action IT system prompts on pensioners’ files to review payments at a later date.
The other was DWP’s prioritisation of processing of new claims over reviewing existing claims.
Pensioners affected by the department’s errors are those who first claimed state pension before April 2016 and who do not have a full National Insurance record or who should have inherited additional entitlement from their deceased partner.
Of the 118,000 pensioners the department could trace, it found it had underpaid them by an average of £8,900 each.
But some underpayments were as large as £128,448, with the earliest dating back to 1985.
The DWP then embarked on a Legal Entitlements and Administrative Practices (LEAP) exercise, which saw it spend millions on recruiting hundreds of staff to address and remedy these underpayments.
In January this year, the Public Accounts Committee called for the government's pension payment system to be overhauled and underpayments to be treated more seriously as part of a critical report.
sally.hickey@ft.com
