Benefits claimants in UK were underpaid by record £3.3bn last year | Benefits

Thousands of people in the UK could receive a payout after official figures revealed that benefit claimants were underpaid by £3.3bn last year, the highest level on record.

The Department for Work and Pensions also admitted that as many as 330,000 people, some of whom have since died, may have missed out on as much as £1.5bn of valuable state pension entitlement – a disclosure that prompted some commentators to warn of a new scandal. Steve Webb, the former pensions minister, said: “The scale of these errors is huge.”

The DWP’s annual report and accounts for 2022-23 also disclosed that the national insurance records for 10 million people claiming universal credit “have not been updated properly”.

The disclosures prompted Whitehall’s spending watchdog, the National Audit Office, to announce it had once again qualified the department’s accounts, meaning money has not been spent as it should have been. It said: “This is the 35th year in which DWP’s accounts have been qualified due to material fraud and error.”

One of the headline findings was that the estimated amount of benefits underpaid by the department climbed in 2022-23 to 1.4% of the total – £3.3bn – a record high. This was up from 1.2%, or £2.6bn, the previous year. The figures cover a range of benefits from universal credit to pension credit.

The personal independence payment – which helps people deal with the extra living costs caused by long-term disability or ill health – is the benefit with the highest underpayment rate. However, the DWP said the increase was mostly due to “claimant error” – for example, where an individual’s medical condition worsened but they did not inform the department.

The DWP said: “We treat underpayments seriously and always look to ensure individuals receive the correct level of payment.” It added: “Claimants have a duty to report their circumstances correctly.”

There has been a long-running issue involving different categories of people being underpaid their state pension: in March this year, the DWP revealed that 46,000 affected pensioners had been repaid a total of £300m.

Thursday’s annual report gives full details for the first time on how a new group lost out – parents who were entitled to child benefit more than two decades ago.

This issue affects people who received child benefit before 2000 and whose national insurance record was not updated to reflect periods of “home responsibilities protection” (a scheme scrapped in 2010) to which they were entitled.

The DWP estimates that 210,000 people – mainly women – fall into this category and received too little, and that the total amount of state pension they missed out on was about £1.3bn, though these estimates were described as uncertain and the final numbers could be larger or smaller.

The department gave a range of between 120,000 and 330,000 for the number affected, and of between £310m and £1.5bn for the amount it would have to repay. The average underpayment is thought to be about £2,000, but some have missed out on as much as £33,300.

The DWP and HMRC said they were “working together to find people affected and correct their records so they receive the correct amount of state pension”.

Later this year, HMRC will embark on an exercise to try to track down as many of those affected as possible. “HMRC and DWP will correct the national insurance records and update state pension entitlement as quickly as possible,” they said.

Commenting on the new state underpayment revelations, the former minister Webb, now a partner at the actuarial business LCP, said: “The scale of these errors is huge. It is shocking that so many women have been underpaid so much money. This makes it essential that things are put right as a matter of urgency.”

Tom Selby, the head of retirement policy at the investment platform AJ Bell, said this was “another state pensions underpayment scandal”. He said: “Given many people rely solely on their state pension to make ends meet in retirement, the fact even more have been identified as receiving too little – particularly during a cost of living crisis – as a result of administrative failures is unforgivable.”