The Pension Service has a long way to go to win back the public’s trust after its handling of a £1 billion underpayments fiasco, it is warned today.
Writing in Money Mail, Dame Meg Hillier, chairman of Parliament’s public accounts committee, says the repeated blunders have undermined confidence in state pension payments.
The Department for Work and Pensions (DWP) has faced a barrage of criticism over the scandal, which saw 134,000, mostly women, miss out over decades.
Short-changed: The Department for Work and Pensions has faced a barrage of criticism over the underpayments scandal which saw 134,000 mostly women miss out over decades
A damning report by the public accounts committee last week said the department had been complacent, reluctant to reveal the scale of the scandal and had since showed little interest in putting things right.
Today, Money Mail dives into the report, and gives you some of the answers the DWP has failed to provide.
Wives who’ve missed out
The scandal hit mostly women who should have had their pensions upgraded by the DWP without having to ask. Those affected reached state pension age before April 2016.
They include wives entitled to a pension worth 60 per cent of their husband’s basic rate, and also divorcees and widows who could claim as much as 100 per cent.
Others hit also include pensioners who should have been paid the minimum 60 per cent of the basic state pension after turning 80.
The DWP has said it will contact all pensioners who did not have their pensions automatically upgraded.
Yet this means anyone who is entitled to a better pension but has to claim it themselves will continue to lose out.
This includes wives whose husbands reached state pension age before March 2008.
The DWP admitted many pensioners would be under-claiming and need to contact the department. But MPs said it was difficult for people to know what to do.
The report warns: ‘These pensioners need clearer information to act, or risk missing out on significant sums.’
Sir Steve Webb, the former pension minister who uncovered the scandal, has spoken to thousands of concerned pensioners.
He says: ‘One consistent theme is the lack of easy-to-understand official information on how the system works. More needs to be done to make sure everyone gets their full entitlement.’
More than 10,000 pensioners died without receiving the money they were entitled to. MPs criticised the DWP for having no proper plan to contact relatives.
The report says the department’s priority was living pensioners rather than the deceased, despite the fact their next of kin could be financially vulnerable.
MPs said the department needed to improve ‘the clarity and availability of information’ on underpayments, including details useful to relatives of pensioners who had since died.
I’m disgusted and so sad for my late mum
Missed out: June Boyle, pictured with husband Keith, died before receiving any of her backdated payment
Rebecca Wilkinson is fighting for the money her late mother missed out on after the DWP sent claim forms to an address at which she had not lived for 30 years.
The DWP wrote to June Boyle when she turned 80 in 2020 to say she could have been receiving a higher pension and was entitled to a year of backdated payments.
The great-grandmother, who died before she saw any of the money, had been receiving less than half of the basic-rate state pension since her retirement in 2000.
Rebecca Wilkinson is fighting for the money her late mother missed out on
Yet after her husband’s retirement in 2006 she was entitled to 60 per cent of his basic-rate pension.
The family are now fighting the DWP in a tribunal after it emerged the department sent the claim forms to an old address from 1975.
Retired engineer husband Keith, 80, said in his appeal: ‘I am meticulous about such matters and if there was an indication as to an availability we would have made a claim.’
Their daughter Rebecca, 50, says: ‘That money would have made a big difference.
They were frugal, always very careful. It would have allowed them to not worry as much.
‘I am disgusted. I don’t think anybody should have to fight for something that is their right. I am angry and sad for Mum. You put your trust in these Government bodies to do right by you.’
Pensioners who missed out have been handed lump-sum back payments of up to £128,000. The average is close to £9,000.
Under government guidelines, departments must put mistakes right and do as much as possible to ensure those who missed out are not worse off as a result.
This means those who are owed money are usually paid interest on the amount — to reflect what they could have had if it had been saved or invested.
The DWP paid interest of around 0.5 per cent on back payments up until January last year, but has since refused to do the same for others.
The department says it made the decision in line with previous correction exercises.
But Sir Steve, now a partner at pension consultancy LCP, says this was ‘impossible to justify’.
He says: ‘I’ve spoken to people whose retirement has been blighted by a reduced pension, and making back payments now doesn’t put things right.’
The DWP has been handing out large lump sums without considering how it will affect those relying on support, MPs say.
A windfall of more than £16,000 can mean pensioners no longer qualify for housing benefit or council tax deductions.
And the elderly are no longer entitled to help with care funding if they have more than £23,250 in the bank.
Yet the committee report says: ‘The department has demonstrated little interest in accounting for financial consequence of a lump sum… and considers it to be the pensioner’s responsibility to advise the authorities.’
Sir Steve says he had spoken to one pensioner whose council tax help stopped after they received their back payment. Others fear they will lose care funding.
Short-changed Money Mail readers also say they have had no information about tax due on their back payments — with even tax advisers struggling to get answers. Sir Steve says tax will be due, but only on the past four years’ worth of back payments.
He also says the money will be taxed as if you had received it as weekly pension income.
Too many are still in the dark
Building trust: Dame Meg Hillier
By DAME MEG HILLIER, chairman of the Public Accounts Committee
Thousands of pensioners have been short-changed. And this has been going on for more than 30 years.
These pensioners, mostly women, had to live on less money than they should have had. The hardship for those worst-hit is one that no lump-sum payment can properly compensate. The whole fiasco undermines our trust in the system.
Few of us question our pension rate and it seems the DWP also didn’t check its maths, despite knowing how complicated the system had become.
The errors, which mostly affect widows and women who rely on their husbands’ pension contributions, were as a result of outdated systems and manual processing.
Small errors that were not recognised each time added up over years to form significant sums of money.
The system is so complex that the DWP cannot create an online tool to help people know if they are owed money.
And there is currently no clear plan for contacting the next of kin of pensioners who have since died. So many people are simply in the dark about their situation.
The lost trust in the pension system is serious. We pay our taxes and National Insurance in trust that the Government will spend it wisely.
The state pension is the one lifelong guaranteed benefit that comes with the deal. We pay in and at retirement we receive our pension.
The DWP has several creaking IT systems. It’s no wonder these pensions could only be calculated by a small number of staff. Alarm bells should have been ringing about the risk of mistakes.
Pensioners are being left in the dark as to whether they’ve been affected and what they can do. A number of women were told they had not been underpaid, only for the DWP to find they were owed money, eroding trust further.
The DWP has to get the cash into the pockets of pensioners who have lost out, but it has a bigger job to rebuild trust.
How to check
The basic-rate state pension currently pays £137.60 a week, so someone on a 60 per cent rate should receive around £82.45 a week.
Wives are entitled to the 60 per cent rate from the day their husband reached state pension age.
However, a rule change in March 2008 required the DWP to automatically pay the increased pension.
Wives who reached state pension age before then had to claim the extra themselves. Those who were unaware can upgrade, but can’t claim all the missed money.
The DWP says those whose husband became entitled to their state pension on or after March 17, 2008, do not need to take any action, and will be contacted.
Sir Steve has also called on the department to ensure divorcees are included in the £23 million correction. Figures show there are 40,000 divorcees on the old state pension receiving less than £82.45 a week.
The DWP says fixing the scandal is a ‘priority’. A spokesman says: ‘We have set up a dedicated team and devoted significant resources to processing outstanding cases, and have introduced new quality control processes and improved training to ensure this doesn’t happen again.’
- You can use this online calculator to find out if you’ve been short-changed: pension underpaid.lcp.uk.com. If you believe you are missing out, call the Pension Service on 0800 731 0469 or write to: The Pension Service, Post Handling Site A, Wolverhampton, WV98 1AF.
TOP SIPPS FOR DIY PENSION INVESTORS
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