DWP under scrutiny over 'shameful shambles' on state pension underpayments

The Department for Work and Pensions (DWP) is facing scrutiny over its handling of state pension underpayment issues, after a report from the Public Accounts Committee (PAC) described the situation as a "shameful shambles".

As reported by our sister title, Pensions Age, the committee concluded that the DWP has been relying on a state pension system that is "not fit for purpose" for decades, warning that "the lack of effective measures to mitigate against the system’s intrinsic vulnerability to error constitutes a fundamental control failure in a critical part of the DWP's responsibilities".

In light of this, the committee recommended that the DWP consider whether there are cost-effective ways to upgrade its IT systems and enhance its administrative processes to reduce the risk of repeated errors, "as a “matter of urgency”.

Issues around the underpayment of state pensions were first highlighted in March 2020 by LCP partner, Steve Webb, after a freedom of information request revealed that "tens of thousands" of women were not receiving the correct state pension uplifts.

Figures from the Office for Budget Responsibility have since suggested that the government could face a £3bn bill over the "systematic underpayment", with a report from the National Audit Office estimating that DWP has underpaid over £1bn in state pensions to around 134,000 pensioners.

Whilst the DWP launched an official correction exercise to address the historical errors in January 2021, the PAC's report pointed out that this is the ninth such exercise since 2018.

Furthermore, the exercise is expected to cost the taxpayer around £24.3m in staff costs alone by the end of 2023, and has also drawn experienced and specialised staff away from business-as-usual, which PAC warned could prompt new backlogs to emerge.

In addition to this, the committee raised concerns over the clarity of information available on state pension underpayments, noting that DWP will only contact pensioners when it finds through these exercises that they have been underpaid, with many not receiving their due.

In particular, the PAC flagged that there is currently no formal plan for contacting the next of kin where a pensioner who was underpaid is now deceased, urging the government to include greater information on groups such as this, which are harder to reach.

Industry concerns over the impact of the underpayments on divorced women were also echoed in the report, with the DWP urged to write to the PAC to explain how it has assessed the risk of systemic underpayments to divorced women, and how it will review other detected underpayments to assess whether there is a systemic cause and take steps to extend the correction exercise as required.

The PAC also argued that DWP has shown “little interest” in understanding the further knock-on consequences paying pensioners a lump sum of their arrears, including issues around social care provision.

As a result, the committee recommended that DWP establish the full extent of the impact on pensioners of receiving a lump sum of arrears of benefit, and seek assurance from local authorities that people are not treated prejudicially compared to how they would have been treated had they received the money over their proper period of entitlement.

More broadly, the PAC warned that DWP's complacency about the level of underpayments has led it to fail pensioners, urging the department to start treating underpayments as seriously as overpayments.

Alongside this, PAC requested that the department set out its plans to both prevent future errors and to strengthen its detection of systemic issues that lead to errors, also requesting periodic updates on the progress of the correction exercise, amid fears that the DWP "has not been sufficiently transparent to parliament".

PAC chair, Dame Meg Hillier, commented: “For decades DWP has relied on a state pension payment system that is clunky and required staff to check many databases - and now some pensioners and the taxpayer are paying in spades.

“Departments that make errors through maladministration have a duty to put those it wronged back in the position they should have been.

"In reality DWP can never make up what people have really lost, over decades, and in many cases it’s not even trying. An unknown number of pensioners died without ever getting their due and there is no current plan to pay back their estates.

“DWP is now on its ninth go at fixing these mistakes since 2018, the specialised staff diverted to fix this mess costing tens of millions more to the taxpayer and predictable consequences of delays in new pension claims. And there is no assurance that the errors that led to these underpayments in the first place will not be repeated in the correction exercise.

“This is a shameful shambles. The PAC expects DWP to set out the step changes it will make to ensure it is among the last.”

Commenting in response, a DWP spokesperson said: “Resolving the historical State Pension underpayments that have been made by successive governments is a priority for the department and we are committed to doing so as quickly as possible.

“We have set up a dedicated team and devoted significant resources to processing outstanding cases, and have introduced new quality control processes and improved training to help ensure this does not happen again. Those affected will be contacted by us to ensure they receive all that they are owed.

“We are carefully considering the content of the Public Accounts Committee’s report and will respond formally in due course.”

Indeed, DWP have previously emphasised that lessons are being learnt as a result of the historical errors, stating that it is "determined" to rectify the issues by the end of 2023.

    Share Story:

Recent Stories


An overview of growth investing
European Pensions Editor, Natalie Tuck, speaks to American Century Investments (ACI), Vice President, Senior Client Portfolio Manager, Kevin Lewis on growth investing.

They discuss how it has performed in 2021, and its outlook, going forward. They also cover ACI’s differentiated growth approach to the investment universe, and how this capitalises on market inefficiencies, as well as how ACI’s team is equipped to invest in this manner.
Podcast: The benefits of private equity in pension fund portfolios
The outbreak of the Covid-19 pandemic, in which stock markets have seen increased volatility, combined with global low interest rates has led to alternative asset classes rising in popularity. Private equity is one of the top runners in this category, and for good reason.

In this podcast, Munich Private Equity Partners Managing Director, Christopher Bär, chats to European Pensions Editor, Natalie Tuck, about the benefits private equity investments can bring to pension fund portfolios and the best approach to take.

Podcast - The power of three: Using Common Contractual Funds to improve tax outcomes for investors
Large asset owners are still investing in equities in a way where they are taxed on their income. The implication is that they get a poorer return. They need to, and can, improve this, but how?

In this podcast, AMX Head of Client and Manager Development, Aaron Overy, and AMX Product Tax Specialist, Kevin Duggan, discuss with European Pensions Editor, Natalie Tuck, about three options to help ensure good withholding tax outcomes for institutional investors.

Mitigating risk
BNP Paribas Asset Management’s head of pension solutions, Julien Halfon, discusses equity hedging with Laura Blows