The Ministry of Justice has decided to recoup pension overpayments made to 12 judges in relation to contracted out benefits.
This comes as the Judicial Pension Scheme found it has made £7,647 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 FTAdviser the Ministry of Justice revealed that it is also recalculating the pension payments currently made to the judges who have been overpaid or underpaid.
The MoJ identified 25 members who received less in pension money than they were entitled to, amounting to a total of £53,917.
The government is currently recovering the overpayments, while underpayments have been corrected through pensioner payroll. The MoJ has written to the affected members.
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.
The MoJ is the only public sector scheme which has so far decided to recoup overpayments.
In contrast, the Teachers’ Pension Scheme found £15m in excess pension payments, but decided not to recover any of it.
David Brooks, technical director at employee benefits consultancy Broadstone, was surprised by the MoJ’s decision as he thought it was not a material sum to the scheme.
He said: "I would imagine that most private sector schemes in this situation would write it off."
Geraldine Brassett, chairwoman of the Pensions Administration Standards Association GMP working group, noted that not many schemes take this approach.
She said: "We're not seeing many schemes recouping overpayments. There are different approaches to future payments, some schemes are reducing the pension to the correct levels, others are freezing it by not giving any more pension increases."
But Andrew Boyt, pension transfer specialist and freelance consultant, warned: "Although the amounts are small and probably insignificant to the judges involved, the principal this sets could be used to justify 'claim-backs' against more pecunious public sector workers such as those in the NHS and AFPS which are yet to complete their reviews.
"I think they should follow the precedent of the Teachers scheme and not pursue the overpaid amounts."
According to two other FOI requests submitted by FTAdviser, the NHS Pension Scheme and the Armed Forces Pension Scheme haven’t finished their reconciliation process yet, which means they don’t know the value of their overpayments or underpayments, or what route they will take to address this issue.
Ms Brassett said several schemes were in different stages of the reconciliation process.
She noted that some have largely finished while others are half way through and waiting from responses from HMRC, which will issue final reports on this matter later this year.
However, Ms Brassett said pension funds don’t need to wait for all the information to start rectifying their records.
She added: "You're going to be building your specifications for doing the calculations, and drafting your letters [to members], so there is a lot you can do."
maria.espadinha@ft.com
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