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UK pensions shortfall is ‘tip of the iceberg’, says former minister

·5-min read
<span>Photograph: Geoff Smith/Alamy</span>
Photograph: Geoff Smith/Alamy

The pension underpayment scandal could be the tip of the iceberg affecting many thousands more people, according to the former pensions minister Sir Steve Webb, who has led the campaign to raise awareness on the issue.

More than £1bn of UK state pensions – an average of £8,900 for each of the 134,000 pensioners affected – has been underpaid due to repeated human errors that were almost inevitable amid complex rules and outdated IT systems, a spending watchdog has said.

The National Audit Office (NAO) found that the level of human errors was “almost inevitable” because rules are complex, IT systems are outdated and unautomated, and the administration of claims requires a high degree of manual review and understanding by case workers.

But Webb has said the same conditions affect many millions of other payments made to people across the UK. “Pension underpayments could well be the tip of the iceberg,” he said. “There must be other systemic errors in government systems that are similarly complicated and necessitate actions being taken when someone’s personal circumstances change. You can well imagine that all such systems are all over the place.

“It will affect the Department for Work and Pensions and departments beyond it too: tax credits are an obvious one,” he added. “So much of tax credits [is] about changing circumstances. Things have to be repeatedly reviewed. It would only need a small percentage point error to get the wrong money going to people for many years.

“Tax credits are a particular risk because no citizen understands them, and so can’t challenge them, because they’re based on past earning figures and other stuff which no layperson can really understand.

“Universal credit is another benefit where one assumes there’s lots of stuff that could be going wrong because it’s another complex system, with complicated rules, that people use for many years and which needs to react to individuals’ behaviour that changes all the time.”

Almost 6 million people in the UK receive universal credit, also administered by the DWP, while another 3.11 million are on tax credits, administered by HM Revenue and Customs.

A DWP spokesperson said Webb’s claims are unfounded. “Universal credit is a digital system that is far less complex than the legacy benefits system.

“There is absolutely no evidence to point to widespread universal credit payment issues,” the spokesperson added. The HMRC was also contacted for comment.

The NAO report found the Department for Work and Pensions (DWP) did not have a means of reviewing individual complaints or errors to measure how many people were complaining about the same issues, to assess whether the errors had a systemic cause. Quality assurance processes are focused on checking changes to case details, such as a new address or the death of a spouse, rather than the overall accuracy of the payments.

Webb said he feared further underpayments are yet to be discovered because “the problem is that there isn’t a learning culture across the government: there are people in government departments who react to complaints and try to make each one right, but no one whose job it is to look at patterns of errors, to look for patterns of mistakes and drill down into what’s happening”.

An estimated £339m will go to pensioners who should have benefited from their spouse’s or civil partner’s national insurance (NI) record; £568m to widows and widowers who should have inherited more state pension entitlement from their deceased partner; and £146m to pensioners who should have had an increase in their pension on their 80th birthday.

Meg Hillier, the chair of the public accounts committee, said: “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.”

The errors affect pensioners who first claimed state pension before April 2016, do not have a full NI record, and should have received certain increases in their basic state pension.

‘Money is terribly important in old age’

When Ann Temple, from Whitstable in Kent, reached 80 three years ago, she received a call from the DWP. “A sharp-eyed pensions officer had noted the tiny size of my state pension – just £300 a month despite having worked my whole life – and on investigation, discovered that I was owed £54,000.”

The money was promptly paid in a lump sum and Temple’s monthly pension payment more than doubled but “there was not a single word of apology for 20 years of being grossly underpaid”.

The underpayments had begun when she retired from her job as a lecturer in 1998. She had divorced her husband more than 30 years previously but had not received a proportion of his state pension, as was her right.

“When I left the university, I went to see a local auditor because my pension seemed so low,” she said. “I particularly wanted to query it because my sister, who had never worked, was getting a bigger pension than me.”

The auditor, however, told Temple she was receiving the correct amount: “I didn’t take it any further,” she said. “I assumed he knew what he was talking about.”

Now, however, Temple is angry. “I’ve been fortunate because I’ve had a lecturer’s and a nurse’s pension as well all these years but had I not, I can’t imagine how I could have survived on £300 a month. You hear of those people who have to choose between heating and eating,” she said. “I wouldn’t have been able to afford to do either.”

“Money is terribly important in old age,” she added. “It’s disgraceful that things that are so important to people, are not important at all to those in power, with the power to change things.”

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