What causes this?

I'm on the annealing side with you.

I think the lower portion of the shoulder is sealed to the chamber but the upper part is not because it stiff from work hardening.

Anneal and if it goes away you got it.
 
You did not state what kind of action the rifle had. If the rifle has a Full Mauser Extractor, and your dies are shoving the shoulder back a few thousands. This could being causing a small open space on the shoulder and neck. This may be allowing gas too get around the mouth of the case and on to the shoulder before the case swells and seals the shoulder and neck area. Another thing to consider. Good Luck in finding the solution.
 
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