PENSIONSANDSAVINGS.COM

• Government may need private sector experts to help correct State Pension underpayments before more of the women die.
  
• The complexity of the calculations mean people can’t work out their State Pension and are totally reliant on Government to pay the right amount.
  
• Over-80s and thousands of divorced women should also be urgently assessed to correct underpayments.
  
• Interest on arrears and compensation are required to address the injustice.
  

The Public Accounts Committee has issued a damning report highlighting ongoing problems of underpayments in the UK State Pension system. Britain’s 12.4million pensioners mostly rely on their State Pension as the bedrock of their retirement income. Women have much lower pensions than men and, with the cost of living crisis and rising pensioner poverty, it is all the more important they receive their full entitlement.

The National Audit Office (NAO) also found systemic failures to ensure State Pension payments are accurate, due to complex rules, multiple and outdated IT systems, manual processing overlays and lack of error checking.  Even the DWP helplines, which the public must call to query whether their State Pension payments are correct, have given false assurances of accuracy, forcing pensioners to keep living on less pension than they were due.

The DWP estimates 134,000 people, mostly women, have received too little State Pension, but only 94,000 are still alive, so thousands passed away without the chance to benefit from the extra money they should have had.

What has gone wrong?

Systemic complexity and long-term data failings: The underlying problem is the shocking complexity of the State Pension system itself and the need to have records dating back over many decades.

People have a potential entitlement to both the Basic State Pension and three Additional Pensions –  the Graduated Retirement Benefit (GRB), State Earnings Related Pension (SERPs) and State Second Pension (S2P) – plus some pension from contracted out occupational or private schemes! Each of these elements of their State pensions will vary depending on the following factors:

 

1. their age (if over 80 they can automatically claim Category D pension of £82.45 a week)
2. their work history since they were age 16
3. how much they earned in each year of their working career over many decades
4. the type of National Insurance contributions they paid each year (such as employee or self-employed, voluntary or purchased years)
5. any National Insurance contributions they were credited with each year (perhaps for childcare, sickness or unemployment)
6. which exact years any National Insurance contributions relate to (part years don’t count)
7. the type of private pension they were paying into each year
8. their marital status
9. whether they are widowed
10. for women, whether they paid married women’s stamp contributions
11. for women, what their husband’s pension is if they paid married women’s stamp
12. for men and women who are widowed or divorced, what their late or ex-partner’s state pension was.

Each of these twelve elements of State Pension entitlement can require a complicated calculation, based on information dating back several decades.

Insufficient expertise: Only a small group of DWP specialists fully understand the system and the complexities are such that members of the public have almost no hope of working out their correct pension themselves. They are, therefore, totally dependent on the DWP to calculate the amount correctly and, if it is incorrect, they will normally not realise. Despite the complexities, it seems there was insufficient staff training, inadequate data accuracy checks, poor integration between new and old IT systems and quality assurance failures across the calculation functions and customer helplines.

Denial, then delays in correcting underpayments: After initially denying the problem in early 2020, the Government finally admitted widescale, long-standing errors and began an official review of potential underpayments (the so-called LEAP exercise) in January 2021, which will not be completed until end of 2023. Of course, the pandemic has piled significant extra workloads on the Department, as Universal Credit claims soared, but continuing delays in identifying and paying pensioners, mean more will die without enjoying the extra money.

Further errors in the correction exercise, which caused delays for new State Pension claims: Furthermore, the NAO found 200 of 1500 married women’s recalculations were still incorrect, and called for better staff training and quality assurance. After diverting more specialist staff to the correction exercise, there were knock-on problems for new State Pension claimants whose State Pension payments did not start on time, with many waiting several months without their money. There are clearly resource problems in State Pension administration.

What else needs to happen?

Bring in private sector expertise if needed to improve staff training, enhance public helplines and increase resource devoted to the correction exercise: If necessary, additional external specialist staff from the private sector should be brought in, perhaps from actuarial firms and pension administration companies, such as those who are used to dealing with the complexity of contracting out calculations for Defined Benefit schemes, to add the required expertise.

Investigate whether divorced women are more seriously affected than so far admitted: Divorced women could be entitled to a full £137.60 a week pension, but 40,000 are receiving less than £82.45 per week, suggesting many are losing out. The DWP told the NAO it had not found any significant evidence of errors in processing divorced pensioner entitlements, however Sir Steve Webb discovered several examples of divorced women receiving too little, or no pension. The Department has admitted these errors and paid them significant arrears.  With 720,000 divorced women in total and 153,000 partner records the DWP says it is unable to trace, surely a wider investigation of divorcees’ State Pension is needed.

Ensure interest and compensation are paid: Since these underpayments have occurred due to official errors, the Government should pay interest on any arrears and those who have faced hardship should receive some compensation too. Before January 2021, those who were underpaid did receive interest, but that has stopped now.

Write to everyone over age 80 who is not receiving their full Category D pension of £82.45: Over-80s are automatically entitled to £82.45 a week, regardless of their NI record, as long as they have been living here. Government should try to contact and trace any over-80s receiving less than this, or no pension at all.

Produce information for the public so they know how to claim any arrears: Many older people are still unaware their pensions are too low. Around a million households are not claiming Pension Credit, so the poorest pensioners may be living on far less than they should. A public information campaign to help people find out about money available to them is urgently needed.

Ensure new State Pension claims are not delayed by staff shortages: The complexities of the old system are still part of the new State Pension, so specialists familiar with the old calculations are needed for new claims. Lack of experts in-house has caused delays to new pensioners receiving their payments, and if external staff cannot be found quickly, it may be necessary to start paying an interim State Pension until accurate calculations are made for new claimants.  Not paying pensions on time leaves many without any money. Many have found their other benefits stopped as they reached state pension age, and have ceased work expecting their pension to start, only to find they have nothing to live on.  This requires emergency attention.

Conclusion

This crisis in State Pension payments needs greater resourcing.  If private sector additional expertise is required, it should be brought in urgently. The correction exercise also needs to be broadened to include the over-80s and divorced women.  As these underpayments involve some of the poorest citizens, potentially with short life expectancy. Delays are unacceptable.