‘Shambles’ – ageing IT systems cited as MPs scold DWP for £1bn pension underpayment

PAC finds that department failed to understand importance of keeping tech up to date

Credit: Howard Lake/CC BY-SA 2.0

The Department for Work and Pensions has been told to urgently review its IT strategy after reliance on out-of-date systems and manual processing led to historic underpayments to thousands of people totalling more than £1bn.

Details of payment shortfalls to particular groups of pensioners – predominantly widows, divorcees and women who rely on their husband’s pension contributions for some of their pension entitlement – began to emerge in 2020.

A report on DWP’s conduct published today by parliament’s Public Accounts Committee blames the department’s failure to recognise the importance of having fit-for-purpose technology to handle its pensions processing as a central issue that department top brass must address.

Last year the National Audit Office said almost 134,000 people who first claimed their state pension before April 2016 had not been paid their full entitlement, with the average underpayment estimated at around £8,900. The watchdog said that, in addition to the bill for rectifying the underpayments, DWP is on course to spend £24.3m on staff to oversee the exercise.

In their report, PAC members said the “correction exercise”, which is due to continue until the end of 2023, has required the recruitment of 500 additional staff and was having knock-on impacts on the processing of new claims.

They said experienced, specialised staff have been moved away from business-as-usual work as a result of the emerging problems. They said there is a risk the errors that led to the original underpayments will be repeated – and potentially also with new claims.

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The report said DWP’s failings stem from its decision not to upgrade the Pension Service Computer System (PSCS), which was introduced in 1988, and to instead introduce new systems to run alongside the legacy system to manage millions of pensioner records.

MPs said DWP had argued that upgrading PSCS would be “incredibly complex and very risky from a business point of view”. However, the result is that case workers need to access three other IT systems to get all relevant pensioner details, opening up the potential for errors to be introduced.

PAC said DWP must consider “as a matter of urgency” whether there are cost-effective ways to upgrade its IT systems and enhance its administrative processes to ensure the quality and timeliness of management information and reduce the risk of repeated errors.

Committee members said DWP should factor in the opportunity cost of not upgrading old systems, including the cost of errors and underpayments to the citizen, when it looks at which projects to prioritise.

Committee chair Dame Meg Hillier said pensioners and the taxpayer are now “paying in spades” for DWP’s reliance on a clunky state pension system that requires staff to check many databases.

“DWP is now on its ninth go at fixing these mistakes since 2018, 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,” she said. “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. This is a shameful shambles. The PAC expects DWP to set out the step changes it will make to ensure it is among their last.”

Department has ‘little interest’ in understanding consequences
The report also noted that while many underpaid pensioners had died before errors could be rectified, lump-sum payments to others could have impacts on their benefits or care entitlements that would not have been an issue if the original entitlements had been paid.

PAC members DWP had shown “little interest” in understanding the further knock-on consequences, including on social care provision, for those it underpaid, despite the Treasury’s Managing Public Money spending guidance.

The guidance states that when public bodies make mistakes that cause hardship, they should provide remedies that restore wronged parties to the position they would have been in if things had been done correctly in the first place.

“In reality, DWP can never make up what people have actually lost, over decades, and in many cases it’s not even trying,” Hillier said. “An unknown number of pensioners died without ever getting their due and there is no current plan to pay back their estates.”

A DWP spokesperson said resolving the historical state pension underpayments made by successive governments is a priority for the department and that it is committed to doing so as quickly as possible.

“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,” they said. “Those affected will be contacted by us to ensure they receive all that they are owed. We are carefully considering the content of the Public Accounts Committee’s report and will respond formally in due course.”

DWP said it is assessing hundreds of thousands of cases as part of its correction work. The department said it is “prioritising resources” on cases of individuals who are still alive, but added it will also look at cases where pensions recipients have died, with arrears potentially payable to an “appropriate individual”.


Sam Trendall

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