Serious doubts raised over State Pension as pensioners left billions out of pocket by Government
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PAC renews calls for action to reduce fraud and error levels as 18%
of Universal Credit claims found to contain element of fraud
There are serious doubts over whether the State Pension is being
paid accurately. Following huge successive underpayments going back
decades leaving pensioners out of pocket by thousands of pounds,
the Public Accounts Committee (PAC) today calls on the Department
for Work and Pensions to provide reassurance over the integrity
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PAC renews calls for action to reduce fraud and error levels as 18% of Universal Credit claims found to contain element of fraud
There are serious doubts over whether the State Pension is being paid accurately. Following huge successive underpayments going back decades leaving pensioners out of pocket by thousands of pounds, the Public Accounts Committee (PAC) today calls on the Department for Work and Pensions to provide reassurance over the integrity of Government records. Two massive historic underpayments of State Pension have caused the PAC serious doubts about the Government’s ability to make accurate and complete payments. According to DWP estimates, some 210,000 people may have been underpaid a total of £1.3bn of State Pension, amounting to an average back payment due of £5,000 each. This was due to gaps in the National Insurance (NI) records of people historically entitled to the Home Responsibilities Protection benefit, and is in addition to the underpayment of £1.2bn affecting 165,000 pensioners due to DWP errors, an issue that the PAC highlighted in 2022. As well as the risk that similar errors may occur with other benefits, and the lack of assurance that further historic underpayments may not occur in future, the PAC is also concerned that these issues were able to build up over many years before the DWP was alerted to them. The PAC’s inquiry found that it will be very difficult to identify people impacted by the latest underpayment, as the DWP no longer holds the relevant records. The report also makes renewed calls for Government to act to substantially reduce the level of fraud and error in benefit spending. There has yet to have been a significant post-pandemic fall in benefit fraud and error, the majority of which is driven by Universal Credit (UC). UC was overpaid by a staggering £5.5 billion in 2022-23, and the report highlights that an estimated 18% of UC claims – relating to over 800,000 people – already contain an element of fraud. Plans to reduce UC fraud and error also depend on DWP’s ability to review 8 million live claims by 2027-28, interviewing and chasing evidence from millions of people. While DWP says this is on track, around 40% of this work will be outsourced to private contractors, bringing further risks to effectiveness, quality and customer service in outsourced reviews. The DWP should explain how it will track the impact of using machine learning algorithms to flag potentially fraudulent benefit claims. Given legitimate concerns over DWP’s transparency around the use of these tools and the potential impact on claimants who are vulnerable or from protected groups, the report calls for more information on whether or not these techniques lead to legitimate claims being delayed or reduced and if this is affecting specific groups of people. Dame Meg Hillier MP, Chair of the Public Accounts Committee, said: “Many pensioners have been left significantly out of pocket by up to thousands, while DWP has been asleep at the switch. These are injustices that may never be corrected for some. We are now in a place where Parliament needs assurance that the State Pension is being paid accurately. We expect DWP to respond to our report in a timely fashion, but frankly, paying pension accurately is a basic that we expect from DWP and not recommendations that our Committee ought to be having to make. “While it is good to see benefit fraud and error fall slightly this year, we are yet to see any significant post-pandemic strides made in addressing it. The DWP’s future strategy relies on assessing many millions of claims over the next few years, and contracting out this work brings its own risks. We will be continuing to scrutinise this work closely, as it is essential for public confidence in the system that the Government fights fraud with unswerving determination, while ensuring legitimate claims remain undisrupted.” PAC report conclusions and recommendations Benefit fraud and error has yet to fall significantly since the pandemic and DWP does not expect it will return to pre-pandemic levels until 2027-28. DWP overpaid 6.6% of benefit spending in 2022-23, excluding State Pension, which is equivalent to £8.2 billion. This is slightly lower than 2021-22, but remains much higher than pre-pandemic levels – DWP estimates it overpaid 4.7% (£4.4 billion) of benefits in 2019-20. The majority of fraud and error continues to be driven by Universal Credit, which was overpaid by a staggering 12.8% (£5.5 billion) in 2022-23. DWP estimates that 18% of Universal Credit claims – relating to over 800,000 people – already contain an element of fraud. DWP predicts that benefit overpayments will not return to pre-pandemic levels until 2027-28. It believes this is in part due to a general increase in the propensity to commit fraud, which it expects will rise by 5% per year indefinitely. As a result, DWP no longer expects to reduce Universal Credit overpayments to the 6.5% figure it previously committed to. Recommendation 1:
DWP expects the activities set out in its counter-fraud plan to generate £9.4 billion of additional savings over the next five years. In May 2022 DWP set out its high-level plan to tackle fraud and error following the pandemic in Fighting Fraud in the Welfare System. This includes £895 million of additional investment over the three years to March 2025 in counter-fraud staffing, advanced data analytics, and a project to review millions of Universal Credit claims. DWP estimates that this investment will lead to £9.4 billion of savings over five years by reducing fraud and error. Following a recommendation from this Committee, DWP has published a detailed estimate of the amounts saved through its counter-fraud work, which it estimates was £1.1 billion for 2022-23. It has also set a target to save £1.3 billion through counter-fraud work in 2023-24. This will need to increase each year to achieve its forecast reduction in overpayments if DWP’s other assumptions are correct. Taken together, the forecast, new savings estimate and target improve accountability by providing greater clarity on the cost-effectiveness of DWP’s counter-fraud activities. However, DWP has acknowledged that the savings estimate is experimental and requires refinement. Recommendation 2: DWP should report annually on its savings from detecting and preventing overpayments and its forecast of future overpayment levels, to at least the level of detail set out in Figure 9 of the Comptroller and Auditor General’s report, while continuing to refine and improve the underlying methodology. The success of DWP’s plan to reduce fraud and error in Universal Credit is dependent on its ability to review 8 million live claims by 2027-28. The biggest element of DWP’s counter-fraud plan is a project to cleanse the benefit system of incorrect payments by reviewing millions of Universal Credit claims – which it calls Targeted Case Reviews (TCR). DWP is investing £443 million in TCR over the current Spending Review period up to March 2025 and expects TCR to produce £6.4 billion of savings by 2027-28. To achieve this, it expects that staff will need to review around 8 million live claims, which will involve interviewing and chasing evidence from millions of people. TCR appears to be working as expected at a small scale (with 25,000 claims in 2022-23), but DWP faces a significant challenge in scaling up the project. It plans to increase the number of its TCR staff from 2,000 to around 6,000 and to more than triple the average number of claims each agent reviews each day. DWP acknowledged these challenges but says it is on track. However, it plans to outsource around 40% of TCR reviews to private contractors, which brings with it further risks to maintaining effectiveness, quality and customer service in reviews that are outsourced. Recommendation 3: As part of its Treasury Minute response to this report, DWP should set out how it will report on the efficacy, quality and customer service of Targeted Case Reviews, including separate disclosure where this has been outsourced to contractors. This is to provide public confidence that the review of Universal Credit cases is working, is not overly burdensome, and is not leading to legitimate claims being disrupted. DWP and HMRC face a significant challenge in making back payments to people who have been underpaid State Pension due to missing Home Responsibilities Protection. In 2021-22, DWP identified underpayments of State Pension due to gaps in the National Insurance records of people who were historically entitled to a benefit called Home Responsibilities Protection (HRP). DWP now estimates that 210,000 people may have been underpaid some £1.3 billion, going back decades. This is in addition to the underpayment of £1.2 billion affecting 165,000 pensioners due to historical errors by DWP that we reported on last year. We are very concerned that DWP has found another systemic underpayment, potentially leaving hundreds of thousands of pensioners out of pocket by an average of £5,000. HM Revenue & Customs (HMRC) administers National Insurance records and told us it will be very difficult to identify people who have been impacted because it no longer holds the relevant records. It plans to contact people it thinks may be affected and invite them to make a claim for HRP. It will then correct the National Insurance record so DWP can pay back any missing State Pension. HMRC confirmed that any back payments may be subject to a tax charge, but it has not decided how it will deal with this. Neither DWP nor HMRC were able to tell us when this issue will be fully corrected. Recommendation 4:
DWP is not doing enough to assure itself or Parliament that it can rely on National Insurance records to pay State Pension accurately and that it will not find further historic underpayments. The £1.3 billion underpayment of State Pension relating to missing HRP is one of three ongoing historical issues reported by DWP. It is in addition to the previous underpayment of £1.2 billion affecting some 165,000 pensioners. DWP now also reports that people who claimed Universal Credit over the period 2017-18 to 2022-23 are missing National Insurance credits due to an IT issue, and that it is working to update records. These underpayments raise serious doubts about the accuracy and completeness of the NI records. There is a risk that similar errors may occur with other benefits, as DWP does not routinely check that claimants are receiving the National Insurance credits they are entitled to. DWP and HMRC told us that their internal audit teams are collaborating on a joint review to provide some assurance over the integrity of the National Insurance records. But it is concerning that these issues were able to build up over many years before DWP was alerted to them. DWP also told us it was working towards responding to our previous recommendation that it does more to detect systemic underpayments early before they can have a serious impact on pensioners. Recommendation 5:
DWP has not yet done enough to understand the impact of machine learning on customers and provide them with confidence that it will not result in unfair treatment. DWP is expanding its use of advanced data analytics to tackle fraud. This includes machine learning algorithms to flag potentially fraudulent benefit claims, so the system learns and adapts without following explicit instructions. DWP says it is in an early stage of implementing these tools, but has already piloted them to tackle fraud in Universal Credit advances. There are legitimate concerns about the level of transparency around DWP’s use of these tools and the potential impact on claimants who are vulnerable or from protected groups. DWP has not made it clear to the public how many of the millions of Universal Credit advances claims have been subject to review by an algorithm. Nor has it yet made any assessment of the impact of data analytics on protected groups and vulnerable claimants; though we acknowledge it has recently committed to provide such an assessment in next year’s annual report. Although DWP has internal governance arrangements over its use of machine learning and performs some ongoing analysis of bias, the results so far have been largely inconclusive. Recommendation 6: DWP should, as part of the assessment in its annual report, consider explicitly the impact of data analytics and machine learning on legitimate claims being delayed or reduced, the number of people affected, and whether this is affecting specific groups of people./ENDS |