Retirement pots could be hit in repayment scandal

lifetime of their pension. The clean-up began in 2016 with the launch of a free two-year ‘reconciliation service’ to enable company pension schemes to match their employees’ pension savings and employment histories against those held by HMRC.

Schemes have until October 2018 to check their data, and it may take another two years to work out how many pensioners have received incorrect benefits.

In addition, while this is going on, pension values could be delayed.

In essence, though it is somewhat more complicated, the problem has arisen due to some scheme members being ‘contracted out’ of the State Earnings-Related Pension Scheme (SERPS) when contributing in their workplace pension.

Financial advisers’ matchmaking service Unbiased explained: “From 1978 to 1997, companies could achieve a reduction in their and their employees’ National Insurance contributions by taking employees out of the additional State Pension.

“The idea was that this would result in lower overall State Pension, but a higher workplace pension which would more than compensate.

“But mismatches between HMRC records and employer schemes suggest that some scheme members were listed as contracted out when they weren’t.”

The records date from when all data entry was manual.

Former pensions minister Sir Steve Webb, now policy director at Royal London, told Unbiased: “If you typed a National Insurance number wrong, or put a decimal point in the wrong place, and you are doing this for millions and millions of people, even a 0.1 error still gives you thousands with the wrong numbers.”

So, will pension schemes try to recoup money that has been paid out in error?

Sir Steve noted: “The trustees aren’t allowed to pay money that they shouldn’t pay. It will increase the margins, the deficits and it will have an impact on other members.”

In March, Geraldine Brasset from the Pensions Administration Standards Association (PASA) indicated to Which? Money that pension schemes might go for one of three options.

She said: “The first is to carry on making pension overpayments and continuing to pay future pension increases, as originally stated. The second would be to reduce an employee’s future payments down to the correct level.

“The final approach involves continuing to overpay an employee’s pension but not applying pension increases, until the pension in payment is the same as what the correct pension payment would have increased to.”

But what if a pension scheme tried to take back overpayments in a lump sum?

Sir Steve commented: “At the very minimum pension schemes should adopt a mean-tested approach, which evaluates a person’s ability to make repayments and establishes a suitable time frame to pay back any money owed.”

Anyone fearful of their position should consult a financial adviser and/or ask their pension scheme if they are taking part in the reconciliation process and how likely it is that their entitlement might change. Trevor Law is managing director of Eastcote Wealth Management, chartered financial planners,

based in Solihull. Email: tlaw@eastcotewealth.co.uk

The views expressed in this article should not be construed as financial advice