Employer makes overpayment to personal pension: can it be corrected equitably?

FatherAbraham

An acquaintance's employer is implementing salary sacrifice for contributions to the group personal pension.

It appears that by mistake, the employer has made an extra credit of employer contributions (Recorded as a "single payment" by the pension provider), in addition to the normal. monthly regular contributions (which consist of employee plus employer contribs before salex, and purely employer ocntribs after salex has been introduced).

Is there any equitable way for the employer to be repaid the mistaken overpayment? Clearly, once money has gone into a pension fund, it cannot normally be gotten out again until retirement. Can mistakes however be reversed, and incorrectly-credited payments refunded?

If not, what would be an equitable way for the employer to be restituted? The overpayment in the pension fund has never been taxed, nor has National Insurance been paid on it. It would clearly be unjust for the employee to have to refund the gross amount from taxed, NIed pay.

Does the employee even have a legal obligation to make restitution, since the payment has gone into the future, by landing in a pension fund?

Am I overlooking any other aspects of the situation which I should warn the acquaintance to be mindful of? There's no chance of an annual allowance being breached, or the total contribs being more than taxable income.

Moral: don't ever make mistaken payments into pension funds, since they're a one-way trip to the future for money.

Warmest regards,
FA

rpc

Can't future payments be reduced until the overpayment is recovered?

xylophone

The employer knows that an error has occurred?

Has the employer contacted the Administrator of the Pension Scheme to discuss the matter?

Shimrod

The company I work for recently changed pension provider. Contributions were made via salary sacrifice, but tax relief was still added on meaning the contribution was too high. The pension provider and company unwound the two months of contributions and re-applied them correctly. So in certain circumstances, it is possible to reverse and re-apply pension payments.

Triumph13

If he's still in employment and the scheme administrators are unabel to refund the company, then the obvious method is for the employer to just stop making further pension contributions until they add up to the overpayment. Employee gets the benefit of being invested for a little longer.

rpc

HMRC do allow things like this to be unwound if necessary (similarly for genuine errors with ISAs).

RPSM12101051 wrote:

However, if, as part of the day to day administration of a registered pension scheme, the scheme receives contributions from an employer in genuine error, the repayment to the payer of the sums inadvertently received by the scheme will not be an unauthorised payment.

and

RPSM12101030 wrote:

The facts and circumstances of a payment will determine whether or not the error resulting in that payment can be said to be a truly genuine error. Most typically these will be payments made as a result of an inadvertent administrative failure or because of circumstances that were beyond the control of the registered pension scheme making the payment or beyond the control of the person making an inadvertent payment to the scheme.

http://www.hmrc.gov.uk/manuals/rpsmmanual/rpsm12101000.htm


Reducing future contributions is a lot easier as you don't need HMRC to agree. If that left the employee worse off (because of a very sharp crash, for example) then there may be an argument that the fund should be topped up to the level it would have been if there were no error.

FatherAbraham

xylophone wrote: »

The employer knows that an error has occurred?

Has the employer contacted the Administrator of the Pension Scheme to discuss the matter?

I only know that the employee knows. What the employer knows is unknown to the employee.

The employee wants to understand the implications of such an error before raising a query with the employer, I believe.

Warmest regards,
FA

xylophone

The employee wants to understand the implications of such an error before raising a query with the employer, I believe.

Why? The employee is not at fault? Surely he would not wish to take advantage of a payment that he knows was made in error?

FatherAbraham

xylophone wrote: »

Why? The employee is not at fault? Surely he would not wish to take advantage of a payment that he knows was made in error?

Because the employee does not wish to be disadvantaged by agreeing to an inappropriate restitution procedure suggested by someone in the employing organization who doesn't know what he or she is talking about (or whose primary goal is to fix the mistake quick before auditors notice it, rather than finding an equitable and correct method of resolving the issue).

This is hardly as simple as receiving an erroneous payment to one's bank account. Unauthorized payments from pension funds can cause punitive measures to be taken against the beneficial owner by tax authorities.

Warmest regards,
FA

rpc

Note that somewhere else in the HMRC guidance I linked to there is an example where they say that if a long time has elapsed and they consider that the mistake should have been picked up earlier, they may not view the payment as a "genuine error" and therefore exempt from all the unauthorised payments problems.

Best bet would be to alert the employer asap, then come back here with the proposed solution. The employee should not be placed at a disadvantage and could cause all sorts of bother if an unsuitable correction were enforced upon them.