State Pension
Pensions

Retirees face state pension cuts after review uncovers errors

Tens of thousands of retired workers face cuts to their state pension after overpayments were discovered in a data checking exercise, experts have warned.

The government confirmed retired workers could see their state pension payments reduced after tens of thousands of errors in records going back 40 years were identified during the biggest data matching exercise involving retirement benefits in UK history.

This required thousands of public and private sector retirement schemes to review records held for millions of workers who “contracted out” of a government plan that allowed them to accumulate additional state pension.

Under contracting out arrangements, both employers and employees were allowed to pay reduced national insurance contributions, which lowered the state pension that individuals were entitled to.

But in return, workplace retirement schemes promised to replace part of employees’ state pension with a Guaranteed Minimum Pension (GMP).

The data checking exercise, reconciling GMP amounts contained in public and private sector retirement scheme records between 1978 and 1997 with those held by HM Revenue and Customs, is finding discrepancies largely owing to poor record keeping, errors and missing paperwork.

For example, the Civil Service Pension Scheme, which has 1m members, last year identified £22m of overpayments relating to GMP errors.

One recent review of GMP records for 500,000 pensioners in private sector retirement schemes identified between 10,000 and 15,000 of overpayments, with a similar number of underpayments, according to Willis Towers Watson, a professional services firm.

Willis Towers Watson said the over and underpayments it had seen ranged from £50 per year to some, which were expected to total more than £10,000 over a lifetime if they were not corrected to the right level.

Sir Steve Webb, the former pensions minister whose reforms prompted the GMP data checking exercise, said these discoveries would have a knock-on effect for the state pension, which could be reduced for some people.

“When the state pension is worked out, a deduction is made to reflect the promises that have been made by company pensions to replace part of your state pension — so-called GMPs,” said Sir Steve, who is now director of policy with Royal London, a pension provider.

“If it turns out that the value of those company pension promises is greater than previously thought, then the amount the state has to pay you is reduced.”

Sir Steve said it was possible that “tens of thousands of people”, including some who retired many years ago, could face cuts to their state pension.

“It’s a pound for pound reduction, so every extra pound of GMP is a pound off your state earnings related pension until it’s reduced to zero,” he added. The State Earnings Related Pension Scheme (SERPS) provides an additional element of state pension for many retired workers, paid on top of the basic entitlement.

The Department for Work and Pensions said most queries raised as part of the GMP data checking exercise did not affect the amount of an individual’s state pension.

“However, where queries do result in changes, we are notified by HMRC, and where the pension is in payment, review the award and notify the individual of the change,” it added.

While pensions could be increased or decreased going forward, the DWP said individuals “will not be expected to repay any overpayments”.

The GMP data checking exercise, which started in 2014, is due to conclude in December this year, after which retired workers are expected to be notified of any changes to their pensions.

About 10,000 retired civil servants are expected to be told this year that their pensions will be reduced after their retirement scheme identified £22m in GMP-related overpayments.

Copyright The Financial Times Limited 2018

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Date published: 14 June 2018

Josephine Cumbo in London

Source: FT.com

Word count: 601

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