Outdated systems core to DWP £1bn pension underpayment blunders

Outdated systems and heavy manual processing are among the reasons behind £1bn worth of state pension underpayments, a report by the House of Commons Public Accounts Committee has found.

According to the report, published on 21 January, which relates to an inquiry into underpayments of the state pension, 134,000 people, mostly women, have been paid incorrect amounts, with some errors dating as far back as 1985. About 15,000 of the pensioners affected have died since the blunders occurred, which means the government owes the pensioners’ estates.

Problems arising from the old systems and manual processing were compounded by what the report described as “complacency in monitoring errors and a quality assurance framework that is not fit for purpose” on the part of the Department for Work and Pensions (DWP). The report noted that the DWP has started efforts – for the ninth time since 2018 – to correct the blunders in January 2021, which will cost the taxpayer about £24.3m in staff costs by 2023.

According to the report, the DWP has been using a state pension payment system that has been unfit for purpose for years, with no measures in place to mitigate its vulnerability to error. It relies on multiple IT systems, including the Pension Service Computer System (PSCS), which was built in 1988, which manages millions of pensioner records. Also, case workers have to access three other systems with little automation, resulting in heavily manual processes.

The complexity of this web of software and the reliance on manual processing meant the quality checks in place at the DWP failed to identify the systematic underpayment to thousands of pensioners, the report said. On the other hand, the department told the committee that it struggled to replace PSCS because it would mean an “incredibly complex and very risky” process from a business perspective.

“[The DWP] repeatedly missed opportunities to upgrade and instead added new functionality by introducing additional systems on top of the first, some of which are also increasingly out of date, increasing the complexity of its administration,” said the report, adding that risk monitoring of these outdated systems is unfeasible.

On the most recent efforts to solve the issues, the DWP told the committee that the latest exercise on that front helped it improve scanning between its various systems and detect any discrepancies. About 60% of claims made under the post-2016 new state pension rules are now fully automated, said the department. However, the report noted that it will take decades until all pensioners are managed by the new system, which leaves scope for new errors to occur.

Fixing the mistakes requires staff with specific skills who must be moved away from business-as-usual activity, said the report, and this has already resulted in backlogs in processing new state pension applications. “There remains a risk that the errors that led to underpayments in the first place will be repeated in the correction exercise,” the report added.

The House of Commons committee recommended that that DWP should look into how it can upgrade the pensions IT systems in a cost-effective way, “as a matter of urgency”, and factor in the opportunity cost of not doing so, including the cost of new blunders and underpayments. The department should also seek to enhance its administrative processes to reduce the risk of repeated errors, it said.