This blog argues that the issues around the State Pension are both larger and more urgent than those with the accessing of private pensions. It argues that DWP’s limited state pension helpline resources should be bolstered by MaPS staff who can help reduce the current acute problem.
This is the summary of the Public Accounts 33rd report into underpayments of the state pension. You can read the full report from here. Reading the report has been an eye-opener to me.
The Department for Work & Pensions (the Department) estimates that it underpaid 134,000 pensioners over £1 billion, with some of the errors dating as far back as 1985. The errors happened because of the Department’s use of outdated systems and heavily manual processing, coupled with complacency in monitoring errors and a quality assurance framework that is not fit for purpose. In January 2021, the Department started an official exercise to correct the errors, the ninth such exercise for the Department since 2018. Some of those affected have died since the Department made the underpayments, meaning that the Department owes the pensioners’ estate.
It is difficult for pensioners potentially affected to know what to do. The Department has set little guidance for people who are concerned that they have been underpaid and has left people in the dark over their entitlement. It will only contact pensioners if it finds they have been underpaid and, as the Department is prioritising living pensioners, there is currently no formal plan for contacting the next of kin where the pensioner is now deceased. The Department also admits that many other pensioners are underclaiming their State Pension and need to contact the Department to receive an uplift to their payments. These pensioners need clearer information to act, or risk missing out on significant sums.
Fixing the Department’s mistakes comes at great cost to the taxpayer and is expected to cost £24.3 million in staff costs by the end of 2023. It requires experienced specialised staff who must be moved away from business-as-usual activity and, as a result, the Department has already experienced backlogs in processing new State Pension applications. There remains a risk that the errors that led to underpayments in the first place will be repeated in the correction exercise.
Managing Public Money requires Departments who make mistakes to put them right and restore people as far as possible to the situation they would have been in had the error not occurred. However, the Department is seeking only to pay people their legal entitlement in arrears, in some cases many years after the event, and has treated people inconsistently in paying interest on their arrears. Apart from the tax treatment of a lump sum arrears payment, the Department has, until recently, had little understanding of or interest in finding out further about the financial consequences for pensioners, such as the impact on social care provision.
The report validates the work of Sir Steve Webb and the efforts of LCP to help pensioners who suspect they may have been underpaid. Their help is available free of charge from this link.
We should also be grateful to Tanya Jefferies of the Daily Mail’s This is Money service.
Furious pensioners slam DWP ‘false promises’ and ‘downright lies’ over state pension chaos, with one widow owed £75,500 after a year long wait @stevewebb1 @MattRodda @rosaltmann https://t.co/5J6pwiplQL
— Tanya Jefferies (@Tanya_Jefferies) January 20, 2022
We have been assured that the DWP is now on top of this issue, but clearly the problems are larger than previously supposed. Just under 1% of all pensioners are thought to have been underpaid with 90% of those 134,000 being women. The largest amount found to have been underpaid is £128,000. The underpaid are receiving the pre-2016 version of the state pension and the problems arise from incomplete NI records and/or inherited rights from spouses.
This is not a political issue but it is a matter that needs the further attention of the Pension Minister.
The report has a number of immediate actions for the Department and I hope that Guy Opperman will seize this moment to act on the Public Accounts Committee’s recommendations.
As a matter of urgency, the Department should consider
whether there are cost-effective ways to upgrade its IT systems and enhance its administrative processes to ensure the quality and timeliness of management information and reduce the risk of repeated errors. In prioritising what IT infrastructure to upgrade, it should factor in the opportunity cost of not upgrading old systems, including the cost of errors and underpayments to the citizen.
When we consider the amount of public funds that is being spent at the Money and Pension Service to help people with private pension savings, it is indeed shameful that many who are in their later years are finding so little help. While the Pensions Dashboard project should be ring-fenced as a priority, much of MaPS IT spend is wasted on frivolities such as the Investment Pathway comparison site. Can some of MaPS’ IT resource be redeployed to the Pension Service
The Department should start treating underpayments on State
Pension as seriously as overpayments and set out to the Committee in its Treasury Minute response to this report what it is going to do both to prevent future errors and to strengthen its detection of systemic issues that lead to errors.
The implication is clear, the DWP needs a cultural upgrade in the way it treats its customers. But there is a lesson for the private sector here too. We must take the strain off the DWP by making private pensions self-sufficient. We should not rely on MaPS to manage the guidance of future pensioners, we should deal with these issues ourselves , through better allocation of resource to customer support and through the creation of better products that do not need advice to work properly.
The Department should improve the clarity and availability of
information on State Pension underpayments, and what people who are concerned that they have been underpaid should do. This should include information for groups the Department finds hard to reach such as the next of kin of deceased
customers
Unglamorous as the state pension is. it is the cornerstone of our retirement income
As I have said in recent blogs, it is a magnificent thing to look forward to
And if MaPS were to turn its attention to explaining to pensioners , the value of their state pension, its time could be more effectively used.
The Department needs, in the short term, to minimise the
knock-on effect of moving experienced staff to work on the correction exercise on other service areas and, in the long term, to ensure that it retains expert staff on the old State Pension rules so long as they are needed to administer the benefit
over the following decades.
The report also sees scope for further errors to occur, noting that there is no process in place to deal with divorce in retirement , meaning that divorcees are also in peril of underpayment. Steve Webb has highlighted this problem and the Public Accounts Committee is adamant that this issue should be dealt with.
The Money and Pension Service – to give MaPS its full name, is here for those who need guidance about their later life finances. Pensions and in particular state pensions are critical to this. Other forms of income – from, drawdowns from DC pots, investments, equity release and later life work, form less than 20% of retirement income.
Why is so much effort having to be put into helping people access their private pensions when so little effort is being put into managing the pension that we most rely on?
