National Audit Office report on Investigation into the underpayment of State Pension

The Department for Work & Pensions (the Department) estimates that it underpaid 134,000 pensioners over £1 billion in State Pension. This was 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, according to the National Audit Office (NAO).¹

The errors affect pensioners who first claimed State Pension before April 2016, do not have a full national insurance record, and should have received certain increases in their basic State Pension.²

The errors were brought to the Department's attention by individual pensioners, concerned experts and the media. The Department started exploring the ‘potential for error' from April 2020 and confirmed that there was a significant issue in August 2020. It started to review cases from January 2021 and will contact pensioners if it finds that they have been underpaid.³

The Department estimates that it will need to pay the affected pensioners it can trace a total of £1,053 million, representing an average of £8,900 per pensioner affected. The Department has not assessed the demographics of pensioners likely to be affected, but most are likely to be women. The Department's estimates are highly uncertain and the true value of the underpayments will only become clear once it has completed its review of all affected cases.

The errors occurred because State Pension rules are complex, IT systems are outdated and unautomated, and the administration of claims requires a high degree of manual review and understanding by case workers. This makes some level of error in the processing of State Pension claims almost inevitable. 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. Caseworkers also often made errors when they did process prompts because frontline staff found instructions difficult to use and lacked training on complex cases.

The Department's approach of measuring, identifying and tackling the largest causes of fraud and error means it missed earlier opportunities to identify underpayments. It does not have a means of reviewing individual complaints or errors, such as how many people are complaining about the same issues, to assess whether the errors have a systemic cause. Quality assurance processes focused on checking changes to case details, such as a change of address or the death of a spouse, rather than the overall accuracy of the payments.

In January 2021, the Department started reviewing cases at risk of underpayment in a Legal Entitlements and Administrative Practices (LEAP) exercise. This exercise was originally expected to take over six years to complete, but following a ministerial decision to recruit additional staff, the Department revised the completion date to the end of 2023. The Department expects to increase the number of full-time staff working on the LEAP exercise from 184 in March 2021 to 544 by the end of January 2022. It expects the administration of the LEAP exercise to cost £24.3 million in staff costs.

Between 11 January and 5 September 2021, the Department reviewed 72,780 cases it had identified as being at risk of having been underpaid or who contacted it querying their payment, and paid £60.6 million of arrears to 11% of these cases. The Department is prioritising individuals who fall into "at risk" categories, such as those who are widowed or over age 80.

The Department may find it particularly difficult to correct underpayments of pensioners who have died. It does not know how many pensioners who have died have been underpaid as, for data protection reasons, it does not usually keep records for more than four years after a pensioner's death, and if married, their spouse's death. As at August 2021, theDepartment had not approved a formal plan to trace the estates of deceased pensioners.

Gareth Davies, the head of the NAO, said:

"The impact of the underpayment of State Pension on those pensioners affected is significant. It is vital that the Department for Work & Pensions corrects past underpayments and implements changes to prevent similar problems in future."

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Notes for Editors

1. The Department for Work & Pensions Annual Report and Accounts 2020-21, published in July 2021, previously disclosed that an estimated £1 billion was underpaid to 132,000 pensioners. This is less than the 134,000 cited in this NAO report as it excluded the 2,000 pensioners that had already been paid their arrears as at 31 March 2021. This new investigation by the National Audit Office sets out further details on who is affected and how much has been underpaid; how the errors happened; how the Department for Work & Pensions assessed the scale of the problems; and what the Department is doing to put things right.
2. State Pension rules changed on 6 April 2016 when the new State Pension was introduced. The underpayments covered by this report were to those receiving State Pension under the old rules, which applies to anyone born before 6 April 1953 (for women) or 6 April 1951 (for men). As of February 2021, there were a total of 10.5 million pensioners receiving basic State Pension under the pre-2016 rules and 1.9 million pensioners receiving the new State Pension.
3. The Department told the NAO that individuals who are identified by the LEAP exercise that are being underpaid State Pension do not need to contact DWP. The Department said it will contact those individuals who are being underpaid and they will receive any arrears they are due in accordance with the law. As this requires DWP staff to carry out detailed assessments of each case, it will take time to assess all cases affected. The Department recommends that anyone who believes they are being underpaid State Pension should in the first instance check https://www.gov.uk/state-pension/eligibility.