Inadequate state pension

#1 —

Public Accounts Committee

Recommendation: On the basis of a report by the Comptroller and Auditor General, we took evidence from the Department for Work & Pensions on the issue of underpayments in State Pension1

Gov response: Based on a report by the National Audit Office, the Committee took evidence on Thursday 28 October 2021 from the Department for Work & Pensions. The Committee published its report on 21 January 2022. This …

Not Addressed

#3 —

Public Accounts Committee

Recommendation: The Department has not given people who are worried they have been underpaid enough information to find out what they should do, with the risk that many may still miss out on money they should receive. The Department’s communications strategy …

Gov response: 3.1 The government agrees with the Committee’s recommendation. Recommendation implemented 3.2 The department welcomes the endorsement of action already taken with their proposed recommendation, although rejects the Committee’s conclusion. As the department set out in …

Not Addressed

#2 —

Public Accounts Committee

Recommendation: The Department’s complacency about the level of underpayments inherent in its approach to administering State Pension has led it to fail pensioners. The Department’s highly manual systems and complex State Pension rules has led to calculation errors and the underpayment …

Gov response: 2025. This should be broken down by how much coverage is being achieved by: • individual commercial suppliers, such as Openreach, Virgin Media O2 and smaller suppliers know as alternative networks or “alt-nets” etc., and …

Accepted

#29 —

Public Accounts Committee

Recommendation: In our January 2022 report, we warned that, given the nature of underpayments identified, there was a risk that similar, unidentified errors existed in the State Pension caseload.60 In 2021–22 the Department identified several new groups of pensioners potentially affected …

Gov response: 6c. PAC recommendation: The department should as part of its Treasury Minute response, work with HMRC to fully evaluate the extent of the HRP underpayment as soon as possible and provide a timetable of when …

Not Addressed

#27 —

Public Accounts Committee

Recommendation: In January 2021 the Department launched an exercise to review around 400,000 cases ‘at risk’ of underpayment to confirm the extent of the issue and reimburse affected pensioners. The Department wrote to us in May 2022 explaining that it was …

Gov response: 6b. PAC recommendation: The department should explain how it will update its communications to reassure pensioners that they will be meaningfully compensated. 6.8 The government agrees with the Committee’s recommendation. Recommendation implemented 6.9 The department …

Accepted

#6 —

Public Accounts Committee

Recommendation: The Department’s efforts to correct the systemic underpayment of State Pension are too slow to meaningfully put things right. The Department now estimates that 237,000 pensioners have been underpaid a total of £1.46 billion in their State Pension. Despite these …

Gov response: The government agrees with the Committee’s recommendation. the National Insurance records maintained by HMRC. Activity has been underway in HMRC closely supported by this department, to understand more about the scale, potential causes, and options …

Accepted

#34 — Establish a plan to ensure State Pension adequacy for all, reviewing undermining system aspects.

Work and Pensions Committee

Recommendation: Once an objective for the State Pension relating to adequacy has been agreed, the Government should put in place a plan for getting everyone to that level. The first step should be to review those aspects of the state pension …

Gov response: The Government is committed to enabling tomorrow’s pensioners to have security in retirement which is why we announced a landmark review of the pensions system days after coming into office last July. The Pensions Investment …

Not Addressed

#33 — Many pensioners, including 2.1 million, rely on inadequate State Pension and experience hardship.

Work and Pensions Committee

Recommendation: One in eight pensioners rely solely on the state pension and it makes up 80% of the retirement income of the poorest pensioners. The Minister for Pensions said to us that the State Pension formed the ‘bedrock of Government support’ …

Gov response: The Government remains steadfast in its commitment to support pensioners and giving them the dignity and security they deserve in retirement. The last Labour Government lifted over one million pensioners out of poverty. It introduced …

Not Addressed

#30 — State pension design and level significantly influence pensioner poverty and health outcomes.

Work and Pensions Committee

Recommendation: We note evidence from the UK and internationally shows that the design and level of state pension benefits can have a significant impact on pensioner poverty, as well as improving health outcomes. (Conclusion, Paragraph 146)

Gov response: The Government is also looking to the future of our pensions system. Automatic Enrolment has been a success with 9 out of 10 eligible employees saving into a workplace pension, but future generations of pensioners …

Not Addressed

#12 — Winter Fuel Payment changes created significant uncertainty and anxiety among older pensioners

Work and Pensions Committee

Recommendation: Our predecessor Committee is amongst those that have criticised Winter Fuel Payments for being poorly targeted and a ‘blunt instrument’ for tackling fuel poverty. As a universal payment, WFP went to pensioners who did not need it, and its real …

Gov response: The Department has a statutory requirement to consider the Public Sector Equality Duty during the decision-making process, including analysing the impact of potential policies which includes older people. We note the Committee’s comments and can …

Not Addressed

#1 — Pensioner poverty has risen since 2010, leaving millions below the Minimum Income Standard.

Work and Pensions Committee

Recommendation: The reductions in pensioner poverty in the late 1990s and 2000s, with the introduction of Pension Credit, were a success. However, we are concerned that from 2010 rates started to rise again. And the latest data on living standards paints …

Gov response: The Government recognise that pensioner poverty is often the result of compounding disadvantages that start long before retirement which is why state support is provided accordingly. For example, we have increased the National Living Wage …

Accepted

#1 — Welsh farming remains a vital but low-income and demanding profession.

Welsh Affairs Committee

Recommendation: In Wales, farming is a vital profession, central to the preservation of the Welsh language and rural culture. Despite its significance, it remains a physically demanding, low-income sector, largely made up of small, family- run livestock farms with an average …

Gov response: The farming sector in Wales plays an essential role in supporting the Government’s Growth Mission and in delivering our Plan for Change. In addition to being an important contributor to the Welsh economy, farming continues …

Not Addressed

#17 —

Public Accounts Committee

Recommendation: When we asked if the Department is able to provide greater clarity to those who think they may have been affected, the Department said that it cannot publish guidance for those who may have been underpaid, such as an online …

Gov response: 3.2 The department welcomes the endorsement of action already taken with their proposed recommendation, although rejects the Committee’s conclusion. As the department set out in the Committee hearing on 28 October 2021 (see questions 149 …

Not Addressed

#8 —

Work and Pensions Committee

Recommendation: People in generation X and older without access Defined Benefit pension saving will have had limited time to build up pension savings through auto-enrolment and are therefore at risk of not hitting their retirement adequacy targets. We recommend the Government …

Gov response: We do not believe now is the right time to consult and we have taken steps to address this challenge, including introducing the new state pension, providing further information and guidance to savers and considering …

Accepted

#30 —

Public Accounts Committee

Recommendation: The NAO reported that the Department cannot rule out that there may be further groups of pensioners, as yet unidentified, that have been affected by a historic underpayment. It concluded that this was in large part because the Department had …

Gov response: 6d. PAC recommendation: By the publication of its next Annual Report & Accounts, set out a plan and timetable for introducing a measure to report the total value of arrears payments that arise due to …

Accepted

#28 —

Public Accounts Committee

Recommendation: In our January 2022 report we were concerned that the Department had not given people who were worried that they had been underpaid enough information to find out what they should do, and that there was a risk that many …

Gov response: 6c. PAC recommendation: The department should as part of its Treasury Minute response, work with HMRC to fully evaluate the extent of the HRP underpayment as soon as possible and provide a timetable of when …

Accepted

#25 —

Public Accounts Committee

Recommendation: We examined the Department’s systemic underpayment of State Pension in January

Gov response: 6. PAC conclusion: The Department’s efforts to correct the systemic underpayment of State Pension are too slow to meaningfully put things right.

Not Addressed

#41 — State Pension age increases disproportionately impact deprived areas, raising pre-pensioner poverty levels.

Work and Pensions Committee

Recommendation: The State Pension age is an important tool for containing the costs of the State Pension. However, improvements in life expectancy across the country have stalled. People living in the most deprived areas of the country have lower life expectancy …

Gov response: The previous Government published impact assessments, including equality analysis, of the increase in State Pension age to 67 ahead of the legislation being introduced in 2011 and 2013: • Impact Assessment - Long term State …

Accepted

#39 — Rising number of private renting pensioners are at increased risk of poverty from Local Housing Allowance.

Work and Pensions Committee

Recommendation: The Pensions Policy Institute expects the number and proportion of pensioners renting privately to grow from around 6% now to 17% in 2041. As many as 400,000 households could become dependent on means-tested benefits. Pensioners renting privately are already at …

Gov response: The Local Housing Allowance (LHA) determines the maximum housing support for tenants in the private rented sector. It ensures that households, including pensioners, in similar circumstances living in the same area are entitled to the …

Not Addressed

#32 — Consult on State Pension objectives, aiming for dignified living standards and reducing pensioner inequality.

Work and Pensions Committee

Recommendation: The pensions adequacy review should consult on objectives for the State Pension, taking account of adequacy, sustainability and fairness. Given that it is the core of the Government’s offer to pensioners, relied on by many pensioners on low incomes, a …

Gov response: The Government is committed to enabling tomorrow’s pensioners to have security in retirement which is why we announced a landmark review of the pensions system days after coming into office last July. The Pensions Investment …

Not Addressed

#4 — Require the pensions adequacy review to consider pension inequalities and poverty in retirement

Work and Pensions Committee

Recommendation: The pensions adequacy review should consider pension inequalities, the groups who are more likely to live in poverty in retirement, and how this will be addressed. (Recommendation, Paragraph 30) 81 Impact on older people

Gov response: The Pensions Commission’s terms of reference specifically include considerations of adequacy and how to improve retirement outcomes, especially for those on the lowest incomes and at the greatest risk of poverty in retirement and groups …

Accepted

#2 — Women face systemic challenges and policy 'blind spots' in pension system design.

Work and Pensions Committee

Recommendation: Improving pension outcomes requires an understanding of the systemic challenges. Of the groups at risk, we took most evidence on the position of women, who make up two-thirds (67%) of pensioners in poverty. Some positive steps have been taken to …

Gov response: We remain committed to monitoring the Gender Pensions Gap (GPeG). This was recognised as important context within the Pensions Commission Terms of Reference which consider the factors that contribute to inequalities in retirement outcomes such …

Not Addressed

#8 —

Public Accounts Committee

Recommendation: HM Treasury has since been developing a remedy for those affected.14 In February 2021, HM Treasury announced that it plans to give the 3 million members affected by the McCloud judgment a choice of which scheme they would like their …

Gov response: The government committed to legislate as soon as practicable to remedy the discrimination identified by the Court of Appeal in the McCloud judgment in its consultation Public service pensions: Changes to the transitional arrangements to …

Under Consideration

#7 —

Public Accounts Committee

Recommendation: As a part of the 2011–2015 reforms, HM Treasury offered ‘transitional protection’ to those closest to retirement. This meant that scheme members within 10 years of their normal retirement age would see no change to their pension age or their …

Gov response: Introduction from the Committee Around 25% of pensioners and 16% of the working-age population are members of one of the four largest public service pension schemes (the armed forces, civil service, NHS and teachers’ pension …

Under Consideration

#2 —

Work and Pensions Committee

Recommendation: Making pensions decisions is complicated. The continued movement from DB to DC, together with auto-enrolment and the increased number of jobs that one person will have over a working lifetime, mean that without intervention decision-making will become more complicated still. …

Gov response: The Pension Commencement Lump Sum (PCLS) forms part of tax policy and any changes are for the government to consider, rather than the regulators. The government’s overriding objective in providing generous tax relief for individuals …

Under Consideration

#22 —

Public Accounts Committee

Recommendation: Since our evidence session Sir Steve Webb has also drawn our attention to a potential systemic error affecting divorced pensioners. The NAO report states that “the Department did not find any significant evidence that it had failed to properly process …

Gov response: 7.2 The department undertakes a yearly review of a randomly selected sample of benefit cases. In reviewing a recent sample of 1500 state pension cases, the department did not find official error specifically relating to …

Not Addressed

#20 —

Public Accounts Committee

Recommendation: Managing Public Money (A4.14) states that ‘when public sector organisations have caused injustice or hardship because of maladministration or service failure, they should consider providing remedies so that, as far as reasonably possible, they restore the wronged party to the …

Gov response: 6: PAC conclusion: In paying pensioners, a lump sum of their arrears, the Department may not be fully restoring them to the position that they would be in had the Department paid them correctly in …

Not Addressed

#16 —

Public Accounts Committee

Recommendation: The Department decided to contact pensioners reviewed as part of the State Pension LEAP exercise only if a correction was made to their basic State Pension.36 Other groups of pensioners can receive arrears if they make a claim to the …

Gov response: 3: PAC conclusion: The Department has not given people who are worried they have been underpaid enough information to find out what they should do, with the risk that many may still miss out on …

Not Addressed

#7 —

Public Accounts Committee

Recommendation: Given the nature of the underpayments identified there must be a risk that similar, unidentified errors exist elsewhere in the State Pension caseload. For example, the NAO report states that “the Department did not find any significant evidence that it …

Gov response: 2021. Greensill Capital marketed its salary advance scheme, Earnd, to NHS trusts from 2019 and charged no fee to employers and employees for using the service Based on a report by the National Audit Office, …

Under Consideration

#6 —

Public Accounts Committee

Recommendation: In paying pensioners, a lump sum of their arrears, the Department may not be fully restoring them to the position that they would be in had the Department paid them correctly in the first place. The payment of a lump …

Gov response: 2030. To build a credible and evidence-based profile for delivery beyond 2025 in the UK’s dynamic market, the department will need to reach three key milestones: • completion of all remaining market surveys to identify …

Under Consideration

#6 —

Work and Pensions Committee

Recommendation: The middle of a cost of living crisis is not the time to ask people to pay more into their pension. However, if they are to do so in future, work to prepare the ground needs to start now to …

Gov response: As part of its priorities, the government is focused on economic stability and growth, which supports higher wage levels and opportunity for increased retirement saving in future. Recognising the current economic context, however, we have …

Not Addressed

#31 —

Public Accounts Committee

Recommendation: We have previously concluded that the Department had been relying on a State Pension payment system that is not fit for purpose for decades, and recommended that it consider ways to upgrade its IT systems as a matter of urgency.66 …

Gov response: 6.1 The government agrees with the Committee’s recommendation. Recommendation implemented 6.2 The department agrees with the recommendation, but disagrees with the overall conclusion, given its previous detailed updates on the State Pensions Legal Entitlement and …

Accepted

#26 —

Public Accounts Committee

Recommendation: By the publication of its Annual Report & Accounts in July 2022 the Department estimated that 237,000 pensioners had been underpaid around £1.46 billion. This is an increase of 105,000 pensioners and £429 million compared with its best estimate as …

Gov response: 6. PAC conclusion: The Department’s efforts to correct the systemic underpayment of State Pension are too slow to meaningfully put things right.

Not Addressed

#37 — Mixed age couple rule inappropriately places older partners on lower Universal Credit payments.

Work and Pensions Committee

Recommendation: The mixed age couple rule means that where one member of a couple is under pension age, they must claim working age benefits, rather than pension benefits as previously. The outcome is that some people in their 70s are still …

Gov response: Since May 2019, couples have needed to claim working age benefits (usually Universal Credit) until both members reach pension age. This approach ensures the working age member of the couple receives the same support to …

Not Accepted

#31 — Pensions adequacy review welcomed for focusing on outcomes and diverse measurement approaches.

Work and Pensions Committee

Recommendation: We welcome the pensions adequacy review and its focus on outcomes. We note that there are different measures, which are all helpful in telling us different things, such as: replacement rates indicate the extent to which 86 people are able …

Gov response: The Pensions Commission’s terms of reference specifically include considerations of adequacy and how to improve retirement outcomes, especially for those on the lowest incomes and at the greatest risk of poverty in retirement and groups …

Not Addressed

#1 —

Work and Pensions Committee

Recommendation: People save for retirement and later life in many different ways, not solely through their pensions. During the course of our inquiry we have been contacted by a number of people who have lost savings, other than pensions, which were …

Gov response: The Department for Work and Pensions (DWP) and HM Treasury already work collaboratively on these issues, including through Project Bloom, and recognise the importance of doing so to address the vulnerabilities the fraudsters exploit. This …

Under Consideration

#12 —

Public Accounts Committee

Recommendation: The BBC faces a number of emerging financial challenges. These include:22 • A significant change in policy for over-75s TV licences which the BBC estimates will leave it £200 million a year worse off. Under the 2015 licence fee settlement, …

Gov response: The BBC will respond directly to the Committee to the recommendations in the Committee’s report.

Under Consideration

#18 —

Public Accounts Committee

Recommendation: The employer contribution rate is next due to be implemented in 2024, where it may change again. Both the SCAPE discount rate—which is a key assumption used to help set the employer contribution rate and drove the 2019–20 increase in …

Gov response: Employer contribution rates for public service pension schemes are determined at valuations which are held every four years. Valuations are a complex process which take several years to complete and are carried out by individual …

Under Consideration

#10 —

Public Accounts Committee

Recommendation: While the cost control mechanism was only used for the first time in 2016, HM Treasury is concerned that it is not sufficiently protecting the taxpayer and members. The provisional results of the 2016 valuations show that costs had fallen …

Gov response: 5.4 HM Treasury is setting out in amending Directions the detail of how the cost control element of the 2016 valuations will be completed. These will be published following engagement with stakeholders before schemes then …

Under Consideration

#32 —

Work and Pensions Committee

Recommendation: We support the Government’s intention to make pensions simpler. Recent policy changes to the normal minimum pension age have highlighted the difficulties of achieving this and we are disappointed that these changes have made making decisions about accessing pensions even …

Gov response: The government acknowledges the benefits of timely and thorough consultation, and in achieving cross-party consensus where possible about the matters being legislated upon. As announced in 2014, the NMPA will rise to 57 in April …

Not Addressed

#9 —

Work and Pensions Committee

Recommendation: The Pension Schemes Act 2021 enabled collective defined contribution (CDC) schemes, which provide retirement incomes from a collective fund. The income from the fund received by members varies depending on how the fund performs. There is demand for the further …

Gov response: We understand that the FCA will be responding to this recommendation separately. Government and Financial Conduct Authority Responses to the Committee’s Fifth Report 9

Under Consideration

#8 —

Work and Pensions Committee

Recommendation: We recommend that the Money and Pensions Service and the Financial Conduct Authority should develop proposals to increase the number of people choosing a mix of retirement products—including cash, drawdown and deferred annuities—to meet their changing needs at different stages …

Gov response: We acknowledge at present that there is little information on the decumulation products providers offer in the trust-based marketplace. There is also little evidence of engagement with members about the level of support they would …

Under Consideration

#7 —

Work and Pensions Committee

Recommendation: Hybrid products which provide a ready-made mix of lump-sums, drawdown and annuities can be complicated and costly. We believe that a personalised mix of retirement products would better meet the needs of savers. However, these options will be difficult for …

Gov response: The principle of joint consultations, where appropriate, underpins the work of TPR and FCA and the Department supports this goal wherever opportunities permit. Since the publication of their joint strategy, TPR and the FCA have …

Under Consideration

#6 —

Work and Pensions Committee

Recommendation: Many more people than currently do, however, would benefit from making greater use of the pension freedoms by choosing a mix of annuities, lump sums and drawdown Protecting pension savers—five years on from the Pension Freedomss Accessing pension savings 61 …

Gov response: We understand that the FCA will be responding to this recommendation separately. Supporting decision making at the point of access

Under Consideration

#5 —

Work and Pensions Committee

Recommendation: We were told that most savers want a reliable income in retirement. Annuities provide this for savers with defined contribution pensions, but have dramatically fallen in use since the introduction of pension freedoms. The transition from defined benefit schemes to …

Gov response: TPR has recently published the code of practice for CDC pension schemes for consultation. They will also look to publish guidance as appropriate to support trustees. Whilst the code of practice is primarily for trustees, …

Under Consideration

#4 —

Work and Pensions Committee

Recommendation: People can usually take up to 25% of their pension as a tax-free lump sum. This is one of the most well-known UK pension policies and leads to many people who access their pensions for the first time taking poor …

Gov response: We welcome the Work and Pension Select Committee’s interest and support for the work we are taking forward to explore the ways in which CDC provision might be extended beyond the single or connected employer …

Under Consideration

#21 —

Public Accounts Committee

Recommendation: Some of those who contacted the Department prior to the LEAP exercise starting in January 2021 received special payments of interest on top of their underpayment.54 The Department chose to stop paying interest on arrears, citing value-for-money considerations and comparability …

Gov response: 6: PAC conclusion: In paying pensioners, a lump sum of their arrears, the Department may not be fully restoring them to the position that they would be in had the Department paid them correctly in …

Not Addressed

#19 —

Public Accounts Committee

Recommendation: The Department told us that it began exploring the potential for underpayments from April 2020, following a number of complaints by individual pensioners and a campaign by the former pensions minister Sir Steve Webb and Tanya Jefferies of Thisismoney.co.uk from …

Gov response: The errors were brought to the Department’s attention by individual pensioners and third-party reporting. Most notably Sir Steve Webb, the former Pensions Minister, and Tanya Jefferies of ThisIsMoney.co.uk provided the Department with example cases of …

Not Addressed

#5 —

Public Accounts Committee

Recommendation: The Department has not been sufficiently transparent to Parliament about the State Pension underpayments. Until recently, the Department has been reluctant to provide details of the volume or value of State Pension underpayments or the backlog in processing new State …

Gov response: 5.1 The government agrees with the Committee’s recommendation. Recommendation implemented 5.2 The department agrees with the recommendation, but disagrees with the overall conclusion, given it has already committed to providing updates on the progress of …

Not Addressed

#7 —

Work and Pensions Committee

Recommendation: In addition to any increase in the statutory minimum, we have been persuaded that there is scope to expand the use of targeted ways to improve outcomes or increase contributions. We recommend the Government commit to a trial of auto-escalation …

Gov response: As part of its priorities, the government is focused on economic stability and growth, which supports higher wage levels and opportunity for increased retirement saving in future. Recognising the current economic context, however, we have …

Not Addressed