Financial expert explains changes to the state pension
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It is estimated that as many as 134,000 Britons have been underpaid their state pension, with pensioners missing out on a total of more than £1billion. The errors are believed to date back as far as 1985.
The underpayment issues have mostly affected women, particularly divorcees and those who rely on their husband’s pension contributions to make up part of their own pension.
Many people impacted will have died before they were able to get the money they were owed, and the DWP currently has no plans to pass these amounts on to the next of kin.
In some cases, those affected are not being paid until many years after the event, and the DWP has also been inconsistent in paying interest, according to the Public Accounts Committee (PAC).
The committee, which is made up of MPs, also said that the most recent efforts which started in 2021 to fix this serious problem are the ninth such attempt since 2018.
Correcting this mistake is expected to come at a significant cost to the taxpayer. The PAC estimates that it will cost £24.3million in staff costs alone by the end of 2023.
There has also been a knock on effect for those trying to claim their state pension for the first time, as staff have been moved away from their normal assignments, which has slowed down the processing of new applications.
The errors are believed to have occurred due to complex pension rules and an obsolete IT system, which the PAC has recommended is updated “as a matter of urgency”.
The IT system which is used to manage the pensions of millions of people dates back to 1988. Quality checks failed to pick up small amounts which were being underpaid, and these eventually mounted up to reach today’s staggering sum of more than £1billion.
Dame Meg Hillier, chairwoman of the PAC, said: “In reality DWP can never make up what people have actually lost, over decades, and in many cases it’s not even trying.
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“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 in delays to 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.”
She added: “This is a shameful shambles.”
The PAC also proclaimed that the DWP should be treating state pension underpayments as seriously as they do overpayments.
Currently, the DWP has not informed people who think they may have been underpaid on what they should do, instead contacting only those whom it finds have been underpaid, according to the committee.
The MPs added: “The department did not consider underpayments to be a significant issue until August 2020, meaning that it missed opportunities to identify and resolve the problem sooner.”
Former pensions minister, Sir Steve Webb, said: “The committee are right to be highly critical of DWP over this whole debacle.
“It is shocking that DWP’s regular checks regarded the level of error on state pensions as too small to be worth investigating when in reality many thousands of people have missed out on potentially life-changing amounts of money.”
Sir Steve added: “There are still far too many people missing out on the state pension to which they are entitled and DWP needs to track them all down as a matter of urgency.”
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.”
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