UK Pension System Faces Scrutiny as Government Data Powers Raise Concerns Over Errors and Fraud

In a scathing report, the UK Parliament's Public Accounts Committee (PAC) revealed that over 200,000 pensioners faced financial losses amounting to £1.3 billion in the previous year due to lax record-keeping and computer errors at the Department for Work and Pensions (DWP).

Shockingly, this marks a continuation of issues highlighted in the committee's previous annual report, where 165,000 pensioners missed out on £1.2 billion. The findings underscore the government's failure to rectify fundamental mistakes within the state pension system, with civil servants accused of being "asleep at the switch".

The PAC's comprehensive review extended beyond pensioner concerns to scrutinize the broader pension and benefits system. The report condemned the DWP for overseeing "eye-watering" levels of fraud and errors, contributing £8.2 billion to the benefits bill in the 2022-23 financial year.

Although this represented a marginal decrease from the £8.6 billion recorded in the prior year, it still dwarfed the £4.4 billion figure from 2019-20.

Dame Meg Hillier, the committee's chair, expressed deep concern about the persistently high levels of fraud and error, emphasizing that the government had not made significant post-pandemic strides in addressing the issue. Notably, DWP officials projected that a return to pre-COVID levels in this domain might not occur until 2027-28, a timeline that was deemed unacceptable by the committee.

A major contributing factor to the pervasive errors and fraud is the Universal Credit system, described in the report as being "overpaid by a staggering 12.8 per cent (£5.5 billion)" in the 2022-23 financial year. The report further highlighted DWP officials' estimation that 18 per cent of Universal Credit claims, impacting over 800,000 individuals, contained fraudulent elements.

Despite acknowledging the DWP's plan to combat fraud and errors, the committee expressed reservations about the effectiveness of the proposed measures.

The DWP's pledge to invest an additional £895 million in counter-fraud initiatives and set annual savings targets was noted, but concerns were raised about the ambitious £443 million project aimed at reviewing eight million live Universal Credit cases over the next five years. The success of this initiative was deemed dependent on the department's ability to scale up recruitment and productivity within the reviewing team.

The PAC stressed upon the need for the DWP to take proactive measures to detect underpayments before they accumulate and adversely affect pensioners and other claimants. The report recognised the difficulty faced by HMRC in cross-checking national insurance records with state pension records to ensure accurate payments but called for increased vigilance to prevent underpayments.

In response to the findings, a DWP spokesperson highlighted their commitment to rectifying errors promptly, with a focus on ensuring that everyone receives the financial support they are entitled to. The spokesperson highlighted the low state pension underpayment rates due to official error, standing at 0.5 per cent of expenditure.

Additionally, the government plans to tackle fraud with new powers, aiming to save £600 million over the next five years.

Amidst concerns about the potential intrusion into state pensioners' bank accounts, a government official has reassured that there is no intention to delve into individual bank accounts.

The clarification comes as the Work and Pensions Committee questioned the Work and Pensions Secretary, Mel Stride, regarding new data powers proposed in the Data Protection and Digital Information Bill. These measures are primarily aimed at combating fraud and errors within the benefits system rather than scrutinising pensioners' personal financial records.

Mel Stride sought to reassure the committee, stating that the proposed powers would not be exercised without a valid reason. He stated that the government aims to use these powers only when there is a signal, based on data, indicating potential error or fraud.

While acknowledging the current low level of fraud regarding pensions, Stride highlighted that circumstances might change in the future.

He reiterated that the decision to implement these measures would be subject to parliamentary approval, ensuring proportionality and acceptability.