Finance

UK pensioners underpaid by £1bn after government errors, watchdog finds

State pension updates

About 130,000 UK pensioners are in line for payouts amounting to thousands of pounds after repeated errors by the government led to more than £1bn of state pensions being underpaid.

The scale of the underpayment was revealed by the National Audit Office spending watchdog on Wednesday as it published the findings of an investigation into state pension calculation errors, first brought to ministers’ attention in early 2020.

The Department for Work and Pensions is now facing calls urgently to compensate those affected after it conceded underpaying 134,000 pensioners a total of £1.053bn, representing an average of £8,900 per pensioner.

However, the bill could rise further, with the watchdog saying the DWP’s estimates were “uncertain”.

“The impact of the underpayment of state pension on those pensioners affected is significant,” said Gareth Davies, head of the NAO.

“It is vital that the Department for Work and Pensions corrects past underpayments and implements changes to prevent similar problems in future.”

The errors affected those who first claimed their state pension before April 2016, who do not have a full national insurance record and who should have received certain increases in their basic state pension.

According to the NAO inquiry, the payment problems were due to “repeated human errors over many years, some level of which was almost inevitable, given the complex rules and high degree of manual review necessary when assessing claims”.

“The department’s caseworkers often failed to set (and later action) manual IT system prompts on pensioners’ files to review the payments at a later date, such as their spouse reaching state pension age or their 80th birthday,” said the NAO.

The NAO added that the department’s focus on tackling the largest causes of fraud and error meant it “missed” earlier opportunities to identify the underpayments.

“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,” said Meg Hillier MP, who chairs the public accounts committee responsible for overseeing government expenditures.

“Correcting these errors comes at great cost to the taxpayer,” she added. “DWP must provide urgent redress to those affected and take real action to prevent similar errors in future.”

The NAO said a “great deal of uncertainty” remained over the estimates provided to it by the DWP and the true number of underpayments would become clear only once the department had reviewed hundreds of thousands of case files by the end of 2023.

“We are fully committed to ensuring the historical errors that have been made by successive governments are corrected and, as this report acknowledges, we’re dedicating significant resource to doing so,” said the DWP.

“Anyone impacted will be contacted by us to ensure they receive all that they are owed. Since we became aware of this issue, we have introduced new quality control processes and improved training to help ensure this does not happen again.”

The DWP is engulfed in a separate scandal over delays to state pension payments to thousands of new pensioners caused by administrative factors.

The department said it was “working hard to clear the current backlog”, with some pensioners having had their first payments delayed by months.

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