In May last year, former Minister Steve Webb, now a partner with actuarial practice, Lane Clark and Peacock, launched a calculator to help the nation’s Grannies work out if they were entitled to more state pension than they had received.. I blogged about it here and again here.
It now turns out that the estimated “uplifts” amount to some £2.7bn. Guy Opperman made this written statement to the House of Commons and Baroness Steadman made the same statement in the House of Lords.
This statement provides an update to the House on uplifts to State Pension which has been a matter of Parliamentary interest since 2020.
We are committed to making sure that those people found to have been underpaid State Pension receive the money they are rightly entitled to.
We became aware of issues with State Pension underpayments in 2020 and we took immediate action to investigate the extent of the problem. This is an issue that dates back many years across successive Governments.
Rectifying these cases is a priority for the Department and we will do it as quickly as possible.
From August 2020 to January 2021 the Department carried out a number of complex scans of legacy computer systems that analysed many millions of State Pension records. The scans identified cases requiring further investigation.
These cases can be categorised into the following groups:
- People who are married or in a civil partnership who reached State Pension age before 6 April 2016 and may be entitled to a Category BL uplift based on their partner’s National Insurance contributions.
Following a change in the law in 2008, when their spouse became entitled to a State Pension, some people should have had their basic State Pension automatically reviewed and uplifted. Underpayments occurred in cases when this did not happen.
- People who have been widowed and their State Pension was not uplifted to include amounts they are entitled to inherit from their late husband, wife or civil partner.
- People who have not been paid Category D State Pension uplift as they should have been from age 80.
For each group of individuals affected, DWP IT systems produce an electronic prompt to consider if an individual’s State Pension amount should be increased. The prompt requires DWP staff to take further manual action and, in some cases, this did not take place.
Following the scan activity, the Department formally commenced a correction exercise on 11 January 2021, clerically examining each of the cases identified through the scans. We have already reallocated a number of staff onto this work and are exploring urgently what else we can do to speed up the process.
Given the complexity of the work, it can take time to assess the most complex cases. This work involves a thorough examination of the State Pension payments, and consideration of any changes to the individual’s circumstances since the original State Pension award was made, to establish if an underpayment has occurred.
Where underpayments are identified, the Department will contact the individual to inform them of the changes to their State Pension amount and of any arrears payment they will receive in accordance with the law.
The Department’s current estimate of the total costs of repaying these arrears is £2.7bn. There will also be increased expenditure on corrected live cases of around £90m per year on average in the coming years. This estimate is based on the system scans and analysis of DWP administrative data. As more information becomes available from the correction exercise, we will refine our estimates.
In addition to the formal correction exercise, the Department is continuing to review thoroughly all State Pension records where an individual has contacted the Pension Service.
The Government is fully committed to ensuring that any historical errors, unaddressed by previous Governments, are put right as quickly as possible.
I will update Parliament as the correction exercise progresses.
Steve Webb’s campaign has been a success and will mean restitution to many pensioners who have been short-changed because the DWP’s systems didn’t work properly. This is a case of a former minister behaving responsibly and effectively. It’s also a case of really good campaigning journalism by Tanya Jefferies of the Daily Mail who reports more fully on the matter here.
It is also a case of the DWP reacting to the problem promptly and with dignity. The administrative cost alone of sorting this problem will be £90m pa for the foreseeable future, the total cost to the “NI fund” in terms of money paid out will be £2.7bn. These are huge amounts and this matter is crystallizing now because the Office Of Budget Responsibility included the costs in their wash-up of costs not in the Treasury’s forecast
It is worrying that these costs come with a “high” degree of uncertainty, but it is good that this matter is now properly in the open.
At the same time as announcing “excess payments”, the OBR has announced “decreased liabilities” to the DWP’s notional national insurance fund.
The OBR estimates spending on the state pension will fall by £600m in 2020-21 and £900m in 2021-22 compared with forecasts made before the pandemic.
There are grim reasons for this. The triple lock will not be so expensive as average earnings will not grow as expected before the pandemic and the grim truth has been recognised that the majority of the 144,000 people who have died from Covid were elderly and probably pensioners.
So – though for the worst of reasons – the overall impact of restitution will be partially offset by reduced payments to our dwindling elderly population.
Let us hope that those who are impacted by these errors live long enough to benefit from the uplift. The payment of the amounts due cannot be a moment delayed.
Stones and greenhouses
The DWP’s reaction to the issues as they came to light is in contrast to the Treasury’s reaction to the revelation that 1.7bn pension savers are not getting promised incentives that should be helping them fund their workplace pensions.
HMRC continue to cite administrative issues for doing nothing about their problem. The Net Pay Action Group estimates the cost of restitution for those who have been caught in the net pay loophole as a fraction of the above costs to the DWP.
If the Treasury is throwing stones at the Pensions Minister, they should be reminded they are in the same greenhouse.