The former minister said he was “shocked” to learn the letter does not clarify that returning the money isn’t mandatory.
Sir Steve argued that this turns pension repayments into a “lottery” where some people send the money back while others don’t.
The former Liberal Democrat politician, who served in the ministry between 2010 and 2015, warned the system disproportionately affects the most vulnerable, who may be grieving and unable to question the letter.
He called for a “consistent approach”, urging the government either to secure a legal basis for recovering overpayments or stop benefiting from “people who don’t know how this system works”.
Radio 4 Money Box listener Dennis said he had been “caught out” by the procedure twice, after both of his parents passed away.
Dennis explained that he followed the letter’s instructions to “settle all” his parents’ affairs.
He added that he “obeys the government and will pay it” as he didn’t know the repayment was not legally required.
Another Money Box listener, Jan, told the BBC that her late husband would be “absolutely beside himself” if he knew that over £250 of his pension had been paid back when it didn’t need to be.
Jan said she was confused when she received a letter from the DWP stating her husband had been overpaid, as she had informed them “immediately” after his death.
“It was upsetting the way it happened and [the way] the whole thing played out,” she said.
The Department for Work and Pensions said in a statement: “It is not our intention to cause distress, however, we have a responsibility to taxpayers to recover overpayments. We acknowledge this is not always possible.
“Whilst there is no legal obligation to repay a debt of this type, we recognise some people will be willing to repay money to which there was no entitlement. We provide full contact details and encourage anyone with concerns to call us.”
For more on this story listen to Money Box at 12:00 GMT on BBC Radio 4 or catch up on BBC Sounds.
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