Personal Finance

Retired civil servants face pension cuts after errors

Thousands of retired civil servants will see their pensions cut by as much as £700 a year because of errors in their payments dating back decades.

Civil Service Pensions, the administrator of the plan, is sending letters to around 36,000 retired members telling them “we have been paying you too much pension”.

The payment errors were identified during an exercise carried out across the retirement scheme to reconcile pension information with records held by HM Revenue & Customs. Around 5 per cent of total members of the CSP scheme are affected.

Overpayments and underpayments, ranging from £5 to £14 per week, were identified in the Civil Service scheme, but most of the errors are understood to involve members getting too much money.

“We appreciate that the overpayment of your pension may cause you some concern and apologise for any inconvenience caused,” said a letter sent to members, seen by the Financial Times.

“In recognition of the fact that the overpayment is not your fault and you could not have known you were receiving an incorrect amount, you will not need to repay the money.”

However, the letter continued: “We hope that you will appreciate that we cannot continue to pay you more than you are entitled to receive and as a result, we have adjusted your monthly income.”

The payment errors related to an element of the civil service pension known as the Guaranteed Minimum Pension (GMP), or an income promise that workplace schemes had to make to those who opted out of the State Earnings Related Pension Scheme (Serps) between 1978 and 1997.

The GMP is supposed to be the equivalent of what an employee would have got from the additional state pension, had they not paid lower national insurance by “contracting out” of Serps.

As the information held by the Civil Service on the GMP was incorrect, the increases it had been applying to the retired members pension for annual cost-of-living rises were too high, resulting in the overpayment.

Around 80 per cent of the errors identified in the civil service scheme resulted in payment changes of less than £5 per week, said the Cabinet Office, which oversees pension arrangements for civil servants.

“We apologise for the inconvenience and are working to resolve this as quickly as possible,” a Cabinet Office spokesperson said in a statement to the Financial Times.

Prospect, the union for civil servants, said it was “disappointing” that administrative failings would result in thousands of civil service pensioners having their finances disrupted by reductions to their pensions.

“The decision to write off past overpayments is the right one but there is no reason why amounts in payment couldn’t have been frozen until caught up by the corrected level, or for adjustments to be made when annual pension increases are due to minimise the impact on members,” said Garry Graham, deputy general-secretary of Prospect.

Experts said similar errors had been found in hundreds of other “contracted out” retirement schemes, which would also be seeking to rectify overpayments or underpayments.

“In the schemes we have worked with, we have found GMP errors in 10 to 30 per cent of members’ records, which will need to be rectified, said Chris Tagg, partner in pension administration at Barnett Waddingham, consultants.

“Around autumn time we are expecting a flurry of schemes to begin writing to members notifying them of the same GMP errors.”


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