Defined benefit (DB) pension schemes have until October 2018 to check their records against the ones being held by HM Revenue & Customs (HMRC), after discrepancies were found in 2016, leading to suggestions people may have received erroneous state pension payments.
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, at the time pensions minister, ended contracting out in 2016, which prompted the final deadline from HMRC for schemes to check their data.
FTAdviser reported in March that as many as 43,600 pensioners could have to give back up to £50,000 already received from their company pensions due to these mistakes.
However, The Pensions Ombudsman has been receiving cases regarding errors in contracting out data in pension transfers, which makes the issue even more complicated, as the money is no longer in the pension scheme.
Tony Attubato, head of early resolution at The Pensions Ombudsman, said: "It is a quite complex area. It is very hard for a member to appreciate that a GMP might be wrong - most members wouldn't have known that they were being overpaid. Schemes are quite sympathetic to that.
"Each case needs to be looked based on its own circumstances, and on the detail on what actually happened, and whether it was fair for the member to have thought that what they were being told was correct."
The regulatory body doesn't have, however, specific numbers on how many cases it has received specifically regarding contracting out, as it doesn't record why the overpayment occurred.
Mr Attubato, who was originally employed by The Pensions Advisory Service (Tpas) dispute resolution before it was merged with The Pensions Ombudsman, argued schemes have the right to recoup the money.
He said: "The law is reasonably clear - even if it wasn't the member's fault, trustees have the right to correct it, and potentially to recover it.
"If someone in that situation came to us we would have to explain that the law is on the side of the pension scheme. There are some legal defences available to a member to perhaps restrict to a limit the amount of recovery, and we would help the member explore to see if any apply to them."
Pension experts, however, believe that this situation is so complicated that few schemes will attempt to recoup the wrongly paid out cash.
Pauline Armitage, a guaranteed minimum pension (GMP) reconciliation specialist, said: "Unless it is an egregious error and the transfer value is hugely overstated, I think the trustees would probably write it off or look to the administrators to recompense them if it is clearly their fault.
"They might find it more embarrassing than it would be worth to try to reverse it. That doesn't of course stop some administrators writing clumsy letters demanding repayment and I suspect those are the ones Tpas are seeing."
Ms Armitage noted, however, if it is a a huge overpayment and the member could have known - say they had a pension transfer quote the previous year and it had doubled, they might try to reclaim it.
She said: "The member would have a limited defence, I think, unless they had vested the pension and retired and could argue change of position."
Arron Slocombe, a partner at law firm Baker & McKenzie, said recovering overpayments in a pension transfer could be very hard and may be uneconomical.
He said: "While the trustees could - and, depending upon the sums involved, should - write to the former members, the cost/benefit analysis of direct claims may well raise any de minimis threshold that the trustees decide needs to be met before the recovery claim is economic.
"Trustees can typically legally justify a decision not to take action if the costs of doing so would outweigh the likely recovery."
Sir Steve, now director of policy at Royal London, argued this is "yet another example of the knock-on effects of sorting out inaccurate guaranteed minimum pension (GMP) data".
He said: "In principle, some people will have been short-changed when they were offered a transfer value and others might have had a slight windfall.
"I very much doubt that schemes could claw back a generous [cash equivalent transfer value] CETV, and it would be very hard to justify even trying, since the member would have had no idea about the error.
"But a client who should have had a higher transfer value might be able to make a complaint to The Pensions Ombudsman that they had lost out through maladministration by the scheme."
According to Martin Bamford, chartered financial planner for Surrey-based Informed Choice, contracting out now has implications for how much you will get from the new flat-rate state pension, and potentially for overpayments or underpayments of transfers from occupational pension schemes.
He said: "It is probably unreasonable to expect the typical pension saver to have kept precise records, potentially going back decades.
"Pension schemes should take responsibility for the accuracy of their data. If they have overpaid members who have previously transferred away, as a result of their own poor record keeping, then they need to take this loss on the chin and ensure remaining scheme members don't lose out.
"If their records were incomplete and have resulted in too little being paid on a transfer, then schemes need to quickly identify this and make good for any losses.
"The complexity of pension legislation combined with inadequate scheme administration standards has led to this position. It should be a lesson to those in power than simple is best and administration standards need tightening up."
maria.espadinha@ft.com
