UK state pension payment system ‘not fit for purpose’, MPs warn

The UK’s state pension payment system is “not fit for purpose” and should be urgently reformed to avoid a repeat of a £1bn underpayment scandal, according to parliament’s spending watchdog.

In a report published on Friday, the House of Commons public accounts committee accused the Department for Work and Pensions of presiding over a “shameful shambles” in its handling of myriad errors in state pension payments dating back to 1985, affecting 134,000 mostly female living and deceased pensioners.

“For decades the Department for Work and Pensions has relied on a state pension payment system that is clunky and required staff to check many databases — and now some pensioners and the taxpayer are paying in spades,” said Dame Meg Hillier, who chairs the committee.

“As a matter of urgency, the department should consider whether there are cost-effective ways to upgrade its IT systems and enhance its administrative processes.”

About 12m people receive the state pension with entitlement based on a record of national insurance contributions or credits.

The DWP became aware in early 2020 of state pension underpayments, with the errors mostly affecting women who first claimed the benefit before April 2016 and who did not have a full national insurance record or who should have inherited additional entitlement from their deceased partner.

Action to address the underpayments began in 2021 and was expected to take almost three years and cost the DWP £23.4m with more than 500 additional staff brought in, the committee said.

“DWP is now on its ninth go at fixing these mistakes . . . (with) the specialised staff diverted to fix this mess costing tens of millions more to the taxpayer and predictable consequences in delays to new pension claims,” said Hillier. “And there is no assurance that the errors that led to these underpayments in the first place will not be repeated in the correction exercise.” 

The committee blamed the errors on the DWP’s use of outdated systems and heavily manual processing, coupled with “complacency” in monitoring errors and a quality assurance framework that was “not fit for purpose”.

The department estimates that the approximately 118,000 pensioners it can trace could receive payments averaging about £8,900. So far, the department has found underpayments of up to £128,448.

The committee was also critical of the DWP for not giving pensioners enough information if they were worried they had been underpaid, sometimes only settling claims years after the event, and being inconsistent in paying interest.

The PAC added that there was no formal plan for contacting the next of kin of the more than 15,000 pensioners who had been underpaid but were now deceased.

“This is a shameful shambles,” said Hillier.

The DWP said it was “carefully considering” the report and would respond formally “in due course”.

“Resolving the historical state pension underpayments that have been made by successive governments is a priority and we are committed to doing so as quickly as possible,” it added.

“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 help ensure this does not happen again.”