A government data-checking exercise has resulted in tens of thousands of retired UK workers facing cuts in their state pension after overpayments have been discovered. Tens of thousands of errors have been identified in records that go back 40 years following the largest ever data matching exercise involving retirement benefits in UK history.
The exercise required thousands of both public and private sector pension schemes to review the records held for millions of workers who "contracted out" of a government plan that allowed them to accumulate an additional state pension. Under this arrangement, both employers and employees were allowed to pay reduced national insurance contributions, which lowered their entitlement to a state pension. In return, however, workplace retirement schemes promised to replace part of employees' state pension with a Guaranteed Minimum Pension (GMP). Unfortunately, the data-matching exercise has found large numbers of discrepancies owing to poor record keeping, errors and missing paperwork. The Civil Service Pension Scheme aline has identified £22 million of overpayments due to GMP errors.
Former pensions minister, Sir Steve Webb whose pension reforms prompted the start of the exercise said that these discoveries could 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."
"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."
"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.