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23 Sep 2021

Bereaved families may miss out on underpaid state pension refunds

Around 15,000 won't get a refund, but the true figure may never be known

The government may find it hard to pay the estates of thousands of pensioners who have died before their state pension refund could reach them, according to a new report bythe National Audit Office (NAO).

This is the latest development in the ongoing scandal surrounding the groups of women who have been underpaid their state pension.

The NAO - the watchdog for public spending - investigated underpayment errors in the basic state pension by the Department for Work and Pensions (DWP) to find out who is affected and how much has been underpaid.

The report reveals over 15,000 won't get a refund because the DWP does not believe it will be able to trace or pay the pensioner or their next of kin, but the true figures may never come to light.

Here, Which? looks at further details on why some bereaved families may miss out, and what the DWP's doing to try and put things right.

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Why has the state pension been underpaid?

Many pensioners had been left short-changed due to a combination of complex rules about women's entitlement under the old state pension system and computer errors made by the DWP.

The fiasco was first brought to light by former pensions minister Steve Webb in his work at pensions consultancy Lane Clark and Peacocklast year.

The DWP estimates that it underpaid as many as 134,000 pensioners who hit state pension age before April 2016 and 90% of those affected are women.

In total, the department has calculated it needs to pay affected pensioners that it can trace £1,053m in arrears of underpaid state pension.

However, the refund figure excludes over 15,000 pensioners where the DWP underpaid the pensioner but it does not believe it will be able to trace or pay the pensioner or their next of kin.

On average, the approximately 118,000 pensioners it can trace could receive around £8,900 by the time the payments are made.

The NAO has highlighted that the figures so far are 'highly uncertain' and the value of most underpayments should become clear when the DWP completes a review of all affected cases, which should be finished by the end of 2023.

Why some families may not get a refund

The government's admitted it won't be able to find out if all the pensioners who have died could be owed a refund, for data protection reasons.

The DWP does not usually keep records for more than four years after a pensioner's death, and if married, their spouse's death.

According to the NAO report as of August 2021, the government had not approved a formal plan to trace the estates of deceased pensioners.

This means spouses, civil partners and next of kin (or anyone entitled to the deceased's estate) of these pensioners may not see a penny.

The NAO's report also says that it's likely that the DWP has made some mistakes when responding to pensioner queries and correcting payments, and there is a risk that it will continue to do so.

It's also possible, given the complexity of the rules, that some pensioners who have contacted the DWP may have been falsely reassured that their payments are correct.

The DWP has since strengthened its governance and quality assurance over the process, but it is likely that at least some errors remain especially over more complex cases, the NAO adds.

  • Find out more: learn how the state pension works and how much state pension you'll get, as well as how you can defer the state pension in our comprehensive guides.

Which groups of women are owed underpaid state pensions?

The NAO's report focuses on underpaid state pensions as a whole, but 90% of those who claim the type of state pension affected are women.

The crucial point to remember is that some women will be paid automatically, while others will have to pick up the phone to make a claim.

More on this and details of who could be eligible to claim are explained in the video below.

The biggest group of women affected are those who were unaware they needed to make a separate claim for an uplift they were entitled to before 2008, when this process became automatic.Under current law, people making uplift claims today are limited to backdating no more than 12 months' worth of payments.

Unlike the women who will be compensated automatically, the DWP previously told Which? that individuals legally required to make a claim for an uplift because their husband reached state pension age prior to the legislation change in 2008 will not be automatically compensated, and still need to make a claim.

According to LCP, around 50,000 of these women could be entitled to backdated payments. If you think you fall under this category you should call the government's Pension Service on 0800 731 0469.

How is the DWP resolving the underpayment issues?

Before January this year, the DWP reviewed cases of those who contacted it directly and paid out £14m to around 2,000 pensioners plus £300,000 in interest payments.

Since then it's been systematically reviewing state pension cases 'at risk' of underpayment to identify who it needs to pay arrears to.

It's contacting pensioners if it finds they've been underpaid under a process which it's called the'Legal Entitlements and Administrative Practices (LEAP)' exercise.

The DWP is recruiting a total of 544 staff to the LEAP exercise and now expects it to take until the end of 2023, at a staff cost of £24.3m.

By July 2021, the DWP said 400,000 cases would need to be reviewed to ensure the pensioner is receiving the correct entitlement. The DWP says it won't have a complete list of cases to review until it completes scans of its systems, which is expected in November 2021.

Between 11 January and 5 September 2021, the DWP reviewed 72,780 cases and paid out arrears of £60.6m. This represents 11% of all cases reviewed during this period. It is prioritising pensioners over 80s and widows.

The DWP says it's also continuing to respond to pensioners who contact it with a query about their payments. However, the NAO report reveals most of those contacting the DWP aren't affected by the errors, and therefore slowing the DWP's LEAP exercise.

What should the government do to resolve outstanding issues?

The NAO has made a series of recommendations to the DWP to resolve outstanding issues around state pension refunds.The NAO says the DWP has already started to respond to some of these which include that the DWP:

  • Ensures clear communications and prompt redress for those affected;
  • Undertakes a full lessons-learned exercise and makes appropriate amendments to processes and controls to ensure such underpayments do not occur in the future; and
  • Improves the way it uses information from quality checks and explores how it can better use claimant and pensioner contact to identify systemic issues affecting payment accuracy.

It's now also recommending the DWP should take a series of steps to improve its process and increase transparency over the exercise. This includes recommendations that the government develops a process by which the beneficiary or executors of estates can find out if the rectification exercise has identified they are due payment of arrears to help tackle cases where the DWP cannot trace the next of kin of deceased pensioners affected.

It also includes regularly updating parliament on the progress of the refunding process, and publishing information on the repayment exercise, including on what guidance is available for pensioners who are concerned they may have been affected by the errors.

The DWP doesn't have to accept all of the recommendations set out by the NAO, but there are some stark examples of where the body has had substantial influence in the past. For example, thanks to its investigation into the NHS continuing healthcare funding in 2017 which found that many people were not receiving timely decisions about whether they were eligible for it, NHS England has improved the data it collects on continued health care, which has allowed better oversight and led to improvements in waiting times.

Find out more: the Which? Money podcast delved into the women's state pension underpayments scandal in May 2021