Why are civil servants still bungling our pensions?

When Stewart Griffiths told the Department for Work and Pensions (DWP) about the death of his mother Wendy, he was stunned to discover that she had been underpaid for 17 years and was owed close to £90,000. But the costly mistakes did not stop there.

Bungling civil servants then wrongly told the grieving family that they would have to pay tax on the pension payments — with interest added on top.

The gaffe is the latest in a long line from the DWP, after it emerged around 100,000 wives and widows were short-changed by up to £1billion in state pension money due to errors going back decades.

MPs have described the department’s handling of the scandal, which emerged two years ago, as a ‘shameful shambles’. And Money Mail can today reveal that the Government is still making mistakes and could now be wrongly collecting tax from victims.

Women who were entitled to bigger state pensions due to their husband’s National Insurance contributions missed out because of human error and outdated systems, with problems stretching back to 1985.

Grandmother-of-two Wendy Griffiths lost out on £89,608 after her state pension was not increased when her husband Colin, a former cricketer, died aged 73 in 2004.

The former social worker, from Princes Risborough in Buckinghamshire, died in July last year, aged 79. But when her son Stewart telephoned the DWP to stop her pension he was told she may have been underpaid.

Stewart, 48, of Grove in Oxfordshire, received a letter two months later to confirm his mother had missed out and that her family were now owed tens of thousands of pounds.

He says the cash would have helped his mother travel more to see family in New Zealand. ‘It was not a hard retirement but there weren’t any luxuries. That [money] would have made a real difference for her,’ he adds. As the executor of her will, Stewart wrote to HM Revenue and Customs (HMRC) to ask if tax was due.

But it took six months to respond, and when the answer came, it was wrong.

Stewart says: ‘I did what I thought was the right thing and sent a letter to HMRC. I received more of a boilerplate letter to say that tax is due on everything and there could be late payment penalties.’

Sensing something was amiss, he sent a Twitter message to former pensions minister Sir Steve Webb, who confirmed this was a mistake.

‘What concerns me is if somebody more vulnerable receives that letter from HMRC and they accept it, and HMRC makes deductions that they are not entitled to make. It does seem a shambles,’ says Stewart.

The underpayments scandal was exposed by Sir Steve and our sister publication This is Money following a question to his weekly pensions column.

His analysis of Government figures found tens of thousands of women weren’t receiving a married woman’s rate worth around 60 pc of the basic state pension. The DWP has since hired hundreds of staff to uncover errors and pay any money due.

Sir Steve, now a partner at consultancy Lane Clark and Peacock, says the DWP should tell families whether or not tax is due when it sends letters informing them of underpayments.

He says: ‘This was a truly shocking case. It is bad enough that Mrs Griffiths was underpaid for the last 17 years of her life, but it adds insult to injury to then try to tax her son on the missing pension. If we had not got involved, Mr Griffiths could have faced a demand for thousands of pounds in tax which he did not owe.

‘The problem could have been avoided if the DWP provided simple information for people about the tax position on these lump sums at the time they are paid.’

HMRC admitted it had wrongly told Stewart he owed income tax. A spokesman says: ‘We are contacting Mr Griffiths to apologise and to inform him that he will not have to pay income tax on his late mother’s pension arrears.’