The Department for Work and Pensions has underpaid 134,000 pensioners — 90 per cent of which are understood to be women — by more than £1bn, according to a report from the National Audit Office.
The NAO blamed “years of human errors” within the department, calling the billion-pound underpayment “inevitable” given the DWP’s “high degree of manual review and complex rules”.
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.
Many pensioners – most of whom are likely to be women – have been short-changed by thousands of pounds, which they are still yet to receive many years later
Meg Hillier MP
But some underpayments were as large as £128,448, with the earliest dating back to 1985.
Some 15,000 pensioners may not receive a payout, due to the fact that the department “does not believe it will be able to trace or pay the pensioner or their next of kin”.
The NAO found 94,000 pensioners affected by the DWP’s historic underpayments were thought to still be alive, meaning 40,000 could have died before receiving compensation.
So far, the DWP has traced approximately 118,000 pensioners, so some of these 40,000 will receive payouts via their next of kin.
While the department said it will not know the demographics of pensioners likely to be affected until it completes its correction exercise, the report highlighted that 90 per cent of those who claim the types of state pension affected are women.
Responding to the report, Meg Hillier MP, chair of the committee of public accounts, said: “Many pensioners — most of whom are likely to be women — have been short-changed by thousands of pounds, which they are still yet to receive many years later.
“This is not the first widespread error we have seen in DWP in recent years. Correcting these errors comes at great cost to the taxpayer.
“DWP must provide urgent redress to those affected and take real action to prevent similar errors in future.”
The figures in the NAO’s report are based on estimates produced by the DWP for its accounts, including amounts paid before April 2021.
While these figures were audited, its report suggested they are still subject to a “great deal of uncertainty”.
“Although these estimates have been subject to our audit, a great deal of uncertainty remains and the true number of pensioners affected and the value of underpayments will only become clear once the department has completed its review of all possibly affected cases,” the NAO’s report stated.
Repeated human errors
The report found underpayments made by the DWP were due to “repeated human error over many years”, “some level of which was almost inevitable given the system’s high degree of manual review and complex rules”.
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 the DWP’s prioritisation of the processing of new claims over reviewing existing claims.
“In addition, it found caseworkers made errors when they did process prompts, because front-line staff found instructions difficult to use and lacked training on complex cases,” the report stated, adding there was “no single person taking responsibility for the overall award” of a pension.
The NAO also criticised the department’s quality assurance, which it said had “missed opportunities to detect, correct or prevent the errors”.
This was because from 2009 onwards, the NAO found that state pension quality assurance focused on checking changes such as address or death of a spouse, rather than the overall accuracy of the payment.
As for dealing with enquiries, the DWP has not historically recorded how many people contact it to complain of underpayments or how many arrears payments it makes, according to the report.
The reason these 134,000 pensioners slipped under the DWP’s radar was due to the government department’s large-scale approach to fraud and error, which failed to detect incremental errors that have added up to more than £1bn over time.
“While the state pension underpayments affected a large number of people, the amount of incorrect expenditure in any one year was so low, [the DWP’s] sampling-based measurement activity was unable to detect there was a significant problem,” the report found.
The NAO said the DWP “is yet to implement” a new, recommended measure to detect underpayments, and still does not assess how individual under or overpayments can link to wider errors.
Addressing the errors
Of the £1bn owed to UK pensioners, the bulk (£568m) is owed to 44,000 widows and widowers who should have inherited more state pension entitlement from their deceased partner.
Some £339m is owed to 53,000 pensioners who should have benefited from their spouse’s or civil partner’s national insurance record, and £146m is owed to 37,000 pensioners who should have had an increase in their pension at their 80th birthday.
The DWP has already paid out £14m of arrears to around 2,000 pensioners. It has also paid £300,000 of discretionary interest payments.
But in an effort “to be consistent”, the department decided to stop paying these discretionary payments from January 2021.
Between January 11 and September 5, the department reviewed 72,780 cases and paid out arrears of £60.6m. This represents 11 per cent of all cases reviewed during this period.
The report said the department was prioritising pensioners over the age of 80 or those who have been bereaved of their spouse, as well as continuing to respond to pensioners who contact it with a query about their payments.
Currently, the DWP is following a Legal Entitlements and Administrative Practices exercise.
This has seen the department recruit a total of 544 staff. It now expects the LEAP to take until the end of 2023, at a staff cost of £24.3m.
The exercise requires experienced state pensions administrators who the department needs to transfer from other work, and backfill with new recruits, according to the NAO.
“This will inevitably put more pressure on the department’s normal retirement services, which are already facing backlogs following Covid-19,” the report stated.
The NAO has also found that in the DWP’s efforts to rectify its errors, it was in fact making more errors.
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“We found that the same problems caused by highly manual processes and staff’s lack of understanding of the complex rules had led to errors in the correction process between January and June 2021,” the report read.
DWP has since “strengthened its governance and quality assurance” over the process, the NAO said.
“But it is likely that at least some errors remain, especially over more complex cases,” it concluded.
This article originally appeared on FTAdviser.com
