Thousands of retired public and private sector workers who 'contracted out' of part of the additional state pension have been overpaid, and could receive reduced benefits in the future, according to press reports.
The errors were uncovered during a data checking exercise reconciling public and private sector pension scheme records on guaranteed minimum pension (GMP) payments between 1978 and 1997 with records held by HM Revenue and Customs (HMRC), according to the Financial Times (registration required).
The Department for Work and Pensions (DWP) told the Financial Times that members of public sector pension schemes would not be expected to repay any overpayments, although their future pension entitlements could be reduced. However, trustees of private sector occupational pension schemes may be required to seek repayment from scheme members, according to pensions expert Isabel Nurse-Marsh of Pinsent Masons, the law firm behind Out-Law.com.
"It is not a surprise that the state pension scheme has been hit by overpayments as a result of GMP reconciliation," she said. "This is a situation that has been faced by pension schemes up and down the country."
"Whilst the DWP has decided not to ask pensioners to repay the overpayments, it may not be so easy for the trustees of occupational pension schemes to make the same decision. For the DWP, it was clearly the right move politically, but the considerations for trustees of occupational schemes are different. Pension scheme trustees have to consider their trust duties, which may lead to the conclusion that they should seek to recover the overpayments - but at the same time, the publicity this has received may increase the likelihood of complaints from their members who are asked to repay overpayments," she said.
GMPs are final salary benefits provided to pension scheme members through their occupational pension scheme in return for contracting out of the State Earnings-Related Pension Scheme (SERPS) at any point between 6 April 1978 and 5 April 1997. SERPS was replaced by the second state pension in 1997, which has now also been abolished. However, pension schemes are still liable to pay GMPs that have been earned for periods of service between 1978 and 1997.
The GMP data-checking exercise began in 2014 following reforms to the state pension, and is due to conclude in December. The review has already uncovered significant discrepancies as a result of factors including poor record-keeping, errors and missing paperwork, according to the Financial Times. For example, the Civil Service Pension Scheme reported £22 million worth of overpayments relating to GMP errors last year, it said.
Whether to equalise benefits provided by way of GMPs following the decision by the Court of Justice of the European Union (CJEU) in the 1990 Barber case and, if so, how this should be done, has also created significant issues for schemes. The CJEU ruled in the Baber case that pension benefits must be equal for men and women in respect of service from 17 May 1990. Although this ruling did not extend to state benefits, the government confirmed in 2012 that it expected GMPs to be equalised. However, neither the government nor the pensions industry has to date been able to come up with a suitable equalisation method.
A sex discrimination case on GMP equalisation, brought by Lloyds Bank trade union BTU on behalf of female members, is due to be heard by the High Court in July.
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