The Pensions Ombudsman has partially upheld a complaint against the civil service pensions administrator MyCSP and the Cabinet Office for causing “significant distress and inconvenience” to a former official who was told to return a nearly £9,000 overpayment.
Anthony Arter, the ombudsman who independently investigates complaints into pensions administrators, told MyCSP to pay the claimant £500 in compensation over the way it sought the return of an overpayment it made over a five-year period after miscalculating their allowance.
The decision is the latest development in a saga that began in 2016, when MyCSP began a review that found it had paid some 2,000 retired civil servants too much. It began making demands for the overpayments, which were uncovered in a CSW investigation two years ago and which totalled £2.7m, some of which had been made over many years.
The claimant, named only as Mr N, joined the civil service pension scheme administered by MyCSP in August 2009, and transferred money from his previous Clerical Medical and Aviva pension schemes into it the following year.
In June 2013, at the age of 65, Mr N retired, opting to take out £25,000 in tax-free cash from the fund in return for a reduction in his annual pension allowance.
Nearly five years later, during a routine check, MyCSP discovered it had overpaid Mr N’s pension by £8,817.65 because it had miscalculated the amount, counting the Aviva transfer twice on a previous statement. He was told to repay the extra cash at a rate of £150 per month over a five-year period.
He was also told his annual allowance would drop from around £6,750 to around £4,400.
His initial complaint through MyCSP’s internal procedure was unsuccessful, based on Treasury guidance on managing public money and on statements he had received from the scheme before retiring detailing how much he was likely to receive.
On contacting the pensions ombudsman, Mr N said he was “completely unaware” MyCSP had miscalculated his payments. He explained that he “based his retirement income on the documents that MyCSP provided and found it difficult to manage without the reduced income. It would be a ‘double whammy’ to have to pay back the excess amount”, the ombudsman said.
Arter noted that under the Limitation Act, administrators have six years to reclaim pension overpayments. MyCSP and the Cabinet Office’s response to Mr N’s complaint was received in March 2019 – three months before the six-year cutoff point – and MyCSP is therefore able to recover the entire overpayment, the ombudsman said.
However, Arter said he disagreed with the Cabinet Office’s assertion that Mr N should have known about the error because it was “clear” the Aviva payment had been double counted.
“So, I find it was reasonable for Mr N not to have noticed that his pension had been calculated incorrectly on the notional benefit statement,” he wrote.
Mr N was also not sent a statement detailing what his pension would be if he withdrew the £25,000 lump sum. “So, I find that Mr N received the overpayment in good faith,” Arter said.
Nevertheless, the ombudsman concluded that none of the potential defences against returning the overpayment applied in Mr N’s case, and that he must therefore pay it back.
But Arter said MyCSP must pay Mr N £500 compensation for the distress its handling of the matter caused him, noting that he had “no reason to expect” he had been overpaid for five years.
“I also recommend that MyCSP contacts Mr N to discuss an affordable repayment plan,” Arter added.
Repayment demands "out of the blue"
In June 2019, CSW reported that former civil servants had received demands to return thousands of pounds after MyCSP determined it had been overpaying their pensions – in some cases over a period of years. Retired officials described receiving letters demanding the repayments “out of the blue”, and said they had not realised they had been receiving the wrong amount of pension.
The overpayments were discovered in a major exercise that began in 2016, in which MyCSP reviewed 30,000 people’s pension entitlements.
The administrator discovered it had overpaid “just over 2,000” scheme members over a 15-year period. The overpayments totalled £2.7m – an average of £1,200 per person – with the highest reaching £34,000.
Several individuals CSW spoke to said they had challenged the decisions but had been unsuccessful. The Cabinet Office later said it would not be writing off the overpayments as Treasury managing public money guidance because it was “deemed cost effective to pursue recovery” of the £2.7m.