Why is it one rule for government and another for the private sector?
If a bank accidentally paid their savers too much because it had accidentally typed into their systems that 0.1 per cent rather than 0.01 per cent interest should be paid on its rubbish current accounts there would be uproar if years later it came demanding the cash back.
It was the bank’s error, savers thought they could trust the organisation not to make mistakes with their cash, and therefore didn’t question the extra few pennies going into their account each month so decided to treat themselves to breakfast at Wetherspoons rather than slice of toast instead.
While it wasn't a great deal of cash extra a month, if the demand was made for many years of Wetherspoons' breakfasts that bill would soon be a substantial one and the saver may not have the cash when the bill landed through their letterbox.
That is why it is appalling that as many as 43,600 pensioners could have to give back up to £50,000 already received from their company pensions as schemes update their contracting out data.
Savers and schemes have a right to expect information they received from HM Revenue & Customs to be accurate.Defined benefit pension schemes have until October 2018 to check their records against the ones being held by HM Revenue & Customs (HMRC), after discrepancies were found with that data in 2016.
The problem is after this reconciliation is finished, up to 1 per cent of defined benefit members with pensions in payment can have material under or over payments, and some schemes are recouping this cash.
Between 1978 and 1997, employers sponsoring DB pension schemes could contract their employees out of the additional state pension, as long as the scheme paid a comparable guaranteed minimum pension (GMP).
The benefit of contracting out was that both employer and worker had a reduction in their National Insurance contribution.
Sir Steve Webb, director of policy at Royal London and former pensions minister responsible for ending contracting out, said the problem has arisen due to data from 30 or 40 years ago coming from an era where it was submitted manually, and keyed in by somebody else.
Sir Steve said: "If you typed a number of national insurance wrong, or you put a decimal point in the wrong place, and you are doing this for millions and millions of people, even a 0.1 error still gives you thousands of people with the wrong numbers."
After several years of allowing schemes to check their data, the taxman established a deadline for this process to be completed.
After this, pension schemes will enter in the rectification phase, which is expected to take around two years.
Pension schemes can’t be blamed for relying on HM Revenue & Customs data.
The government needs to accept some of the blame here but instead a spokesperson at the taxman said: "Over or under payment of an occupational pension is not a matter for HMRC.
"Pension scheme administrators are responsible for the quality of their records, including data on contracting-out."
But surely savers and schemes have a right to expect information they received from HM Revenue & Customs to be accurate?
Why should they be penalised for HMRC's mistake?
emma.hughes@ft.com
