Defined Benefit  

Teachers’ pensions overpaid by £15m

Teachers’ pensions overpaid by £15m

Thousands of retired teachers are facing cuts to their monthly pensions as the Teachers’ Pension Scheme recalculates the benefits due to its members. 

The recalculation comes as the scheme found it has made £15m in overpayments to members over the years as a result of a data matching exercise with HM Revenue & Customs relating to contracted out benefits.

In response to a freedom of information request from Financial Adviser the Department for Education revealed it won’t recover the overpayments but all affected members will have their pensions recalculated instead.

They will receive a personal letter detailing how the change affects their monthly pension, the government officials stated.

There will also be cases of underpayments and affected pensioners will receive back-payments with added interest, the DfE stated.

The Teachers’ Pension Scheme has more than 1.9m members, of which 692,000 are pensioners.

Neil Walsh, pension officer at trade union Prospect, said pensioners could see their payments cut by "hundreds of pounds per year".

He said: "The scheme is obliged to write off the overpayment because they were not the fault of members and there is no way they could have known about them.

"There is a strong case for the amount of pension to be frozen until caught by the corrected level, rather than making unexpected cuts to pensioners’ incomes that they had no way of planning for in advance."

The data matching exercise was carried out after discrepancies in contracted out benefits were found in the records in 2016, leading to suggestions people may have received wrong state pension payments.

Between 1978 and 1997, employers sponsoring defined benefit pension schemes could contract their employees out of the additional state pension, as long as the scheme paid a comparable guaranteed minimum pension.

The benefit of contracting out was that both employer and worker saw their National Insurance contributions reduced.

Final salary plans had until October 2018 to check their records against the ones held by HMRC, and correct them appropriately after the exercise was concluded.

In the FOI response, the Department for Education stated £15m was an estimate based on the work it has done so far and a small number of cases were still to be resolved with HMRC.

The teachers’ pension scheme began contacting members who have been overpaid during January and had contacted the majority of members by March 31, 2019.

Those who have been underpaid will be contacted after the end of April. The calculations to determine the value of underpayments will not be made until after this year’s annual pensions increase exercise has been completed, which is happening this month.

Sir Steve Webb, director of policy at Royal London, and former pensions minister responsible for ending contracting out in 2016, said the abolition of these benefits had removed a lot of complexity from the pension system going forward but there were still decades of legacy issues to be resolved.