Thousands of civil servants are to receive reduced pension payments after scheme administrators discovered an error in entitlement calculations going back decades.
The Financial Times has reported that MyCSP, the private and staff-owned administrator of the civil service pension scheme, was sending letters to around 36,000 retired members stating that they have been paid too much pension. The Cabinet Office has confirmed to CSW that the letters are being sent out.
According to the FT, retired civil servants will see their pensions cut by as much as £700 a year to correct errors found following a data matching exercise between the civil service pension scheme and HM Revenue and Customs, although overpayments will not be reclaimed.
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The errors were found in an element of the pension entitlement calculation know as the Guaranteed Minimum Pension.
The GMP was a pledge made by employers who opted out of the State Earnings Related Pension Scheme, which ran between 1978 and 1997, to provide a guaranteed income amount, in exchange for lower national insurance contributions.
However, according to the FT, information provided to civil servants in the scheme was incorrect, meaning that the annual cost-of-living increases paid through the guaranteed minimum scheme were too high. This recalibration foorms part of a wider recalculation being undertaken by many other pension schemes that opted out of SERPS.
The letter sent to members stated: “We appreciate that the overpayment of your pension may cause you some concern and apologise for any inconvenience caused. In recognition of the fact that the overpayment is not your fault and you could not have known you were receiving an incorrect amount, you will not need to repay the money.
“We hope that you will appreciate that we cannot continue to pay you more than you are entitled to receive and as a result, we have adjusted your monthly income.”
The Cabinet Office said that in the majority of cases, the reduction would be less than £5 per week. In a statement, a spokesperson said: “We apologise for the inconvenience and are working to resolve this as quickly as possible.”
Civil service trade unions slammed the administrative failings.
Garry Graham, deputy general secretary of Prospect, told the FT that the decision to write off past overpayments was the right one. However, instead of implementing cash cuts, he called on pension payments to be frozen in cash terms and not adjusted for inflation until the payments had reached the right amount.
The revelation comes as the government has confirmed that it will keep the contribution rates for the Civil Service Pension Scheme unchanged in 2019-20 despite the cost of the scheme falling below a threshold that should trigger a reduction for current contributors to the scheme.
A valuation of the Civil Service Pension Scheme had identified that the cost had fallen below the target cost, which trade unions have calculated should trigger a 2% reduction in contributions.
However, the government announced in January that it will pause part of its work on the valuation of public service pensions – including the Civil Service Pension Scheme – due to an ongoing court case.
Are you affected by this change? Have you received a letter reducing your pension? CSW wants to hear from civil servants in the comment box below, or email editorial@civilserviceworld.com