Retirees face cuts in state pension after review highlights errors

News


14 Jun, 2018

Retirees face cuts in state pension after review highlights errors

After a data checking exercise discovered overpayments in records going back 40 years, experts have warned that tens of thousands of retired workers could face cuts to their state pension.

The largest data checking exercise in UK history exposed thousands of errors after public and private sector retirement schemes were asked 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 could pay reduced national insurance contributions, hence lowering the state pension that individuals were entitled to. And in return, workplace retirement schemes vowed to replace a portion of employees’ state pension with a Guaranteed Minimum Pension (GMP).

After reconciling GMP amounts contained in public and private sector retirement scheme records between 1978 and 1997 with those held by HMRC, the discrepancies have been put down to poor record keeping, errors and missing paperwork.

Former pensions minister, Sir Steve Webb, whose reforms prompted the GMP data matching exercise, said these discoveries would have a direct effect on the state pension, which could see payments cut for some people.

Sir Steve, who is now director of policy with Royal London, said: “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”.

“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”.

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

“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 to the state pension for many retired workers, which is paid on top of the basic weekly entitlement.

The Department for Work and Pensions (DWP) said most of the errors discovered as part of the GMP data checking exercise did not affect the amount of an individual’s state pension.

However, it added that “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”.

The GMP review is due to conclude in December 2018, after which retired workers are expected to be notified of any changes to their pensions.

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