16 July 2009
A review by the National Audit Office of overpayments to public service pensioners totalling £90 million has found a complex and fragmented administrative process, prone to error, and for which there is no clear overall responsibility. The process requires effective joint working between the parties involved (the five public service pension schemes, HM Revenue and Customs (HMRC), and the Pension, Disability and Carers Service (PDCS)) but they have failed to achieve this.
The overpayments, and a smaller number of underpayments, have affected over 90,000 retired soldiers, doctors, nurses, teachers and civil servants. The errors occurred because the pension schemes did not have Guaranteed Minimum Pension information recorded for these members, which meant that the schemes did not apply correct annual cost of living increases. The five pension schemes involved plan to write-off the resulting overpayments, and those pensioners who were underpaid are now receiving the money to which they were entitled in previous years.
The errors, which affect six per cent of pensions being paid to members over state pension age in the five schemes, occurred over many years. So far, the pension schemes have identified 85,509 individual overpayments totalling £90.2 million, and 4,917 underpayments totalling over £191,000. The pension schemes are still working to resolve more than 26,000 cases and so these figures are likely to rise.
Despite the complexity of the administrative processes involved and the known history of problems – some of the parties involved raised concerns about the process as far back as the mid 1990s – few checks and controls were in place, which meant that missing information on the Guaranteed Minimum Pension went undetected, in some cases for over 20 years. No one party has taken responsibility for overseeing the whole process, ensuring it runs smoothly and resolving errors. The process therefore broke down in a number of ways.
“This is a sad case of public administration failure. Warnings were first sounded years ago that there were problems but no one took responsibility for resolving them. It is essential to prevent errors on this scale from happening again, but this will happen only if one party takes responsibility for the process as a whole.”
Amyas Morse, the head of the National Audit Office, 16 July 2009
The Government announced the errors in December 2008 and said that the National Audit Office would carry out a review of the payment errors.
The Guaranteed Minimum Pension was earned between 1978 and 1997, by members of pension schemes (including the five public service pensions schemes) that ‘contracted-out’ of the state second pension (the earnings related element of the state pension). The principle underlying this was that individuals should not be any worse off as a result of their pension scheme contracting out, and that the Guaranteed Minimum Pension should be broadly equivalent to the additional/state second pension they would have received had their scheme not ‘contracted out’.
The five public service pension schemes affected by the errors were the armed forces, civil service, judiciary, NHS and teachers.
The responsibility for the errors is split between: the pension schemes and their payment contractors for neglecting to check that they had the necessary information in order to calculate payments correctly; HMRC for failing to have adequate arrangements for tracking Guaranteed Minimum Pension notifications which were rejected and returned by schemes, and for not having checks in place to reduce the risk of notifications being sent to the wrong pension scheme; and the PDCS for not always finalising state pension claims either at all or properly, so there was no trigger for HMRC to issue the Guaranteed Minimum Pension notification, and for supplying HMRC with incorrect scheme reference numbers, meaning that notifications were sent to the wrong schemes.
Press notices and reports are available from the date of publication on the NAO website, which is at https://www.nao.org.uk/. Hard copies can be obtained from The Stationery Office on 0845 702 3474.
The Comptroller and Auditor General, Amyas Morse, is the head of the National Audit Office which employs some 900 staff. He and the NAO are totally independent of Government. He certifies the accounts of all Government departments and a wide range of other public sector bodies; and he has statutory authority to report to Parliament on the economy, efficiency and effectiveness with which departments and other bodies have used their resources.