National Audit Office report reveals £1bn state pension scandal and more of this week’s finance news

National Audit Office report reveals £1bn state pension scandal and more of this week’s finance news

 · 11 min read
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This week’s finance news brought a damning report from the National Audit Office about pension underpayments. We also learned that HMRC is being urged to increase the Money Purchase Annual Allowance for over 55s and that fraud losses in the UK surged in the first half of 2021.

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According to a report released by the National Audit Office, a catalogue of errors led to more than £1billion worth of underpayments of the state pension. The report concluded that a series of human errors made over many years led to the enormous pensions underpayment scandal, resulting in more than 130,000 people being underpaid.

The report shows that 134,000 pensioners, mainly women, were affected by underpayments. The data indicated that the problem was down to outdated computer systems, which contributed to errors being made. The government has stated that all those affected will be paid what is due to them.

Questions raised over the effectiveness of the system

As a result of the report and errors highlighted, questions have been raised over the effectiveness of the state pension system. In addition, many want answers about how so many errors occurred.

Following the release of the reports, Meg Hillier, the chair of the Public Accounts Committee, said, "This is not the first widespread error we have seen in the DWP in recent years. Correcting these errors comes at great cost to the taxpayer. The DWP must provide urgent redress to those affected and take real action to prevent similar errors in future."

The issues were connected to the "old" state pension, which allowed married women with a poor pension to claim a 60% basic state pension based on contributions made by their husbands.

Due to system failures, many of these women did not receive their pension rises, with the problem dating back as far as 1985. While efforts are being made to trace those affected, not all women will be able to claim the total amount. Some may only be able to claim for up to 12 months of missed payments, while an estimated 40,000 affected women have already died.

According to figures released so far, the Department for Work and Pensions is expecting to pay a total of £1.05billion to the affected pensioners that it can trace. This equates to an average of just under £9,000 per person. It is thought that it will be the end of 2023 before this exercise can be completed.

UK fraud losses surge in the first half of 2021

According to UK Finance, the sheer scale of fraud across the UK now means that it is considered a threat to national security. Figures from the trade body show that fraud losses increased by 30% in the first half of 2021 compared to 2020.

Data shows that fraud losses climbed to a staggering £753.9 million during the first six months of 2021, with the most significant impact stemming from impersonation scams. Investment scams have also become a huge issue and have resulted in massive losses.

In addition, it was revealed that the most significant contributor to fraud losses was authorised push payment (APP) fraud. APP fraud is where people are tricked into paying money into accounts run by fraudsters. In contrast, with unauthorised fraud, the money is taken by fraudsters without account holders’ permission.

Social media adding to the issues

UK Finance experts also revealed that social media is playing a big part in the rising level of fraud. Criminals are increasingly turning to these platforms to identify and target potential victims.

A significant increase was seen in APP fraud, with criminals posing as authority figures such as police officers and HMRC officials to scam people out of money. The figure for this type of fraud more than doubled, rising to over £129 million.

The data also showed that investment scam losses rocketed by 95% to nearly £108 million. Part of this increase was due to a rise in fraudulent adverts on social media for financial products, including cryptocurrency.

Another area of fraud that experienced an increase was purchase scams, where consumers make payments for products or services that they never receive. Also, romance scams, where people are tricked into paying someone they have met online, via dating sites or elsewhere, have increased.

Banks will struggle to control the problem

The scale of the UK’s fraud problem is such that many are concerned that the banking industry will not be able to combat it alone.

Katy Worobec, the managing director of Economic Crime at UK Finance, said, “The banking and finance industry invests billions in advanced systems to try and stop fraud happening in the first place, but criminals are exploiting weaknesses outside of banks’ control to trick customers into making payments directly to them. This is why we are calling for coordinated action and increased efforts from government and other sectors to tackle what is now a national security threat.”

The problem with fraud and scams has become far worse due to the Covid-19 pandemic. Fraudsters have capitalised on more people being at home, online, and using mobile banking during the past 18 months. 

HMRC urged to raise Money Purchase Annual Allowance for over 55s

HM Revenue and Customs is being urged to raise the Money Purchase Annual Allowance for over 55s by pensions experts. This comes amid concerns that many of those in this age group may have affected their retirement plans by withdrawing money from their pension pots to meet financial difficulties during the pandemic.

There are fears that many over 55s moving toward pension age may have withdrawn money during the pandemic to tide them over but did not realise the consequences of doing so. As a result, many could now be hit with pension restrictions around how much they can transfer into their defined contribution pension each year. The cap placed on this means that some may have adversely affected their retirement plans by withdrawing money.

Unable to put back the money withdrawn

Essentially, the restrictions in place at present mean that some in this age group may find they cannot put back all of the money they withdrew during the pandemic.

The Pensions and Lifetime Savings Association (PLSA) said that 7.3 million people in Britain have a defined contribution pension. However,  the number who have withdrawn from them during the past 18 months is not yet known.

There are now calls for the allowance to be increased, with concerns many with defined contribution pensions may have dipped into them to increase their income while during the pandemic.

At present, the Money Purchase Annual Allowance stands at a maximum of £4,000 per year. This means that anyone that has dipped into their pot and taken £4,000 out will not be able to put the same amount back in. There are now calls for this cap to be increased to £10,000 for over 55s in light of the current situation.

Steve Cameron, Aegon’s Pensions Director, said, “There are widespread concerns that the Money Purchase Annual Allowance of £4,000 has been set too low.”

He added, “We fear the MPAA is catching an increasing number of over 55s who take some of their pension flexibly, without realising the limit this places on future pension contributions, including through auto-enrolment workplace schemes.”

Brits advised to check eligibility for Cold Weather Payment this winter

Over recent weeks, there have been various announcements relating to the price hikes being put into place by the Big Six energy companies in the UK. In addition, with several smaller energy firms recently collapsing, more people may be pushed toward using the Big Six with their hiked costs to supply them with energy at higher prices.

Brits are now being urged to check whether they may be entitled to the Cold Weather Payment, which could provide a boost of £25 over the cold winter months. With the hike in energy prices, this bonus payment could make it easier for many households to stay warm this winter and receive additional financial support during the cold snap.

Many households will be affected by energy price hikes

Many households will be affected by the energy price hikes, particularly since they have been brought in just as the colder weather comes around this winter. However, some households that claim certain benefits may be entitled to this Cold Weather Payment, which is available between November and March. 

To qualify, Brits must be in receipt of one of a range of benefits. These include Universal Credit, Pension Credit, Employment and Support Allowance, and Income Support. In addition, those who receive Support for Mortgage Interest to help them with mortgage interest payments may also be eligible.

The payment is made to Brits if the average temperature in the area falls to zero degrees or is forecast to fall to zero degrees or below for seven consecutive days. The £25 payment is made for each 7-day period where temperatures reach or are forecast to reach this level. The scheme is open to all those aged 16 and above who are on qualifying benefits.

Concerns arise over poverty among pensions in Britain

Age UK has released a report relating to the number of pensioners in Britain living in poverty. The charity has expressed concerns over the number of older people in this situation, releasing the report earlier this week as MPs were preparing to discuss the suspension of the state pension triple lock.

According to the report, women are at increased risk of poverty in old age, particularly if they are single. Furthermore, the data showed that black and Asian people were also at increased risk of poverty in retirement. The report highlighted these people live on a retirement income below 60% of the average household income.

While the report highlighted that retired white males were the least likely to struggle as pensioners, the data suggested that around 860,000 in this category are also experiencing poverty.

What else did the data show?

Based on Department of Work and Pensions figures, data from the report also showed that poverty among female pensioners had increased by 6% between 2012/2013 and 2019/2020.

In addition, the figures indicated that poverty levels among male pensioners had risen from 12% to 16% during the same period. According to Age UK, a total of 18% of pensioners - 2.1 million people - are living on the breadline.

The highest risk was among single female pensioners, with the figure standing at 27% for this group compared to 23% for single men and 13% for pensioners with a partner. Age UK also said that due to increases in the state retirement age for women, the number of female pensioners had dropped by around 800,000 in those seven years.

Committed to action

In the meantime, DWP officials say they are working to reduce poverty among pensioners across Britain.

A spokesperson for the department said, “We are committed to action that helps to alleviate levels of pensioner poverty. Our ground-breaking pension reforms, including automatic enrolment, have helped millions more women save into a pension, many for the first time. Pension participation among eligible women working in the private sector has risen from 40 percent in 2012, to 86 percent in 2019.”

They added, “’Last year there were 200,000 fewer pensioners in absolute poverty than a decade ago and we expect to spend more than £125billion on benefits for pensioners in 2020/21.”

Image Credit: LYCS Architecture at Unsplash

Reno Charlton
Reno Charlton
Reno joined Age Group in 2020 and has nearly 20 years of writing experience. Although she specialises in writing about finance topics and covering finance news, Reno is also a published author and has written several children's books and short stories.
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