Pensions blunder cost soars

Thousands of elderly people are affected by the cut

An "appalling administrative blunder" over pensions by social security officials is set to cost the taxpayer at least £5bn more than previously thought, say MPs.

The mix-up over the State Earnings-Related Pension Scheme could cost more than £13bn and take 50 years to put right, they say.

This appalling administrative failure has caused distress to many thousands of people and will undoubtedly cost taxpayers many billions of pounds

MP David Davis

The error happened after 1986 when the then Conservative government changed Serps so that widows, instead of receiving partner's pension in full when he died, would only receive half. It was due to take effect from April 2000.

But the changes were properly publicised for only a year. Pension information published in 1987 failed to mention the changes - prompting MPs on the Commons Public Accounts Committee to issue a harsh condemnation.

Compensation scheme

MPs also fear the current government's promise of redress may not aid all those affected as the Department of Social Security does not hold all their addresses.

Serps was set up in 1978 to provide a state second pension for those without occupational or personal pension schemes.

Labour has delayed the introduction of the cut until October 2002, giving people more time to make other arrangements, and has promised compensation to those who have lost out because they were misled.

The government says those eligible would be married, have made National Insurance contributions since 1978 and were misinformed after 1986.

Redress promised

Social Security Secretary Alistair Darling told BBC Radio 4's Today programme: "What we have said is that, as a matter of principle, where somebody receives incomplete or incorrect information from the government, they are entitled to redress.

"That's why we are setting up the inherited Serps scheme, the details of which have not yet been announced because we are still working on them."

But the director of a leading firm of pensions specialists called for compensation for everyone, including those given no information at all, not just those misled.

Ronnie Lymburn, of The Annuity Bureau, said: "All of the people affected were disadvantaged so all should get compensation."

Earlier this year, a National Audit Office report on the affair warned the cost of compensation could be £8.2bn. The MPs now say it could be much higher.

Dishonesty warning

The MPs welcomed the government's commitment to protect those who had been misled, but also warned that any scheme should be guarded against fraudulent claimants.

Committee chairman, Tory MP David Davis said: "This appalling administrative failure has caused distress to many thousands of people and will undoubtedly cost taxpayers many billions of pounds over the next 50 years to put right."

The MPs said: "We are concerned that many of those affected will not hear about the scheme, or may find it difficult to understand."

Mr Davis said: "It is now up to the Department for Social Security to see that all those who have lost out are protected, and that this time people are fully informed about the Inherited Serps scheme."

Opposition to cut

The government has set up a pensions directorate to ensure similar problems do not occur in future.

Gordon Lishman, director general of Age Concern England, said: "People may miss out because they will not be able to prove they were misled, or they simply may not know that the scheme exists at all.

"It is because of these difficulties that Age Concern believes the government should not halve the amount of inherited Serps, based on existing contributions."

Speaking for the Liberal Democrats, spokesman Steve Webb also said the government should compensate all those involved.