Warning: Double-check state pension forecasts after Govt admits 'significant' errors - MSE News

SnowMan

DairyQueen wrote: »

DWP miscalculated my starting value for the nSP.


It took me around 18 months, and numerous phone calls, emails and letters to HMRC, DWP and old employers, before I received a correct calculation. I eventually received the equivalent of four extra 'qualifying NI years' when my starting amount was increased by approx. £20 in 2018. I then only required one further year of NI contributions before reaching the maximum allowed. I achieved that in April this year.

My problem resulted from having been a member of some DB schemes for under two years at various times throughout my career. In the past, service of under two years meant that any pension contributions were returned at end of service and no deferred DB member benefits were retained.

As I discovered, DB schemes contracted out of SERPS so membership of a DB scheme increased the 'COPE' amount calculated by DWP. The COPE value is only relevant to the nSP when calculating the starting amount. The higher the COPE, the lower the starting amount.

In instances where an employee had left service in under two years, and therefore received no deferred DB pension benefits (and thus no contracted-out benefits), the employer was supposed to ensure that DWP were advised retrospectively that the ex-employee had been 'contracted-in' for that employment period. This required the employer to make good the SERPS deduction via an additional NI payment to DWP.

I discovered that two ex-employers had made the payment. HMRC had these payments recorded but they had not passed the relevant information to DWP, and DWP are responsible for calculating the starting amount. Two employers (including a Local Authority) had never made the retrospective SERPs payments to DWP. They had simply trousered it.

I was therefore still recorded by DWP as having been contracted-out into DB schemes from which I received no benefits when I should have been contracted-in.

I would advise anyone who has, in the past, 'lost' their deferred DB benefits (i.e. left service within two years and had their contributions returned) to reconcile their NI record with DWP, including periods of contracted-in and contracted-out employment. Differences can then be further investigated with HMRC. This is an onerous process but can be, as in my case, extremely beneficial.

I only discovered the large under-calculation of my starting amount when I noticed that service with one employer was entirely missing from DWP's record of my NI contributions (another screw-up). This triggered the call to DWP that also revealed the missing contracted-in periods.

That's a very interesting post (that's assuming pensions can ever be interesting ) , and you've done remarkable well to work out what has gone wrong.

The fact that it is has happened more than once to you suggests it isn't a one off.

As you say when members left contracted-out pension schemes with less than 2 years service, and received a return of contributions, which is what normally happened in that circumstance, the scheme would have paid a premium called a CEP (Contributions Equivalent Premium) to HMRC to buy the member back into SERPS for that period.

As you explain clearly the CEP was paid in your case but the information wasn't passed on by HMRC (to whom the CEP was paid) to the DWP and so you were recorded as being contracted out for the less than 2 year periods when you were effectively contracted in.

This means your COPE would have been overstated thus understating the new rules calculation of your April 2016 starting amount, but would also presumably under-estimate SERPS/S2P and so potentially under-estimate the old rules calculation of the April 2016 starting amount. So in most cases where this error had happened the starting amount would be lower than it should be, regardless of whether the starting amount was based on the old or new rules calculation.

How did you manage to uncover this error? Presumably the year was still showing as a qualifying year in your record but it was the COPE and SERPS/S2P component for that year that was wrong. But that would be hidden in the total COPE/SERPS and S2P figures so almost impossible to identify as an error.

It is worth saying that for leavers prior to 6th April 1988 that a refund of contributions was possible (and indeed the norm with a consequential buying back into SERPS) where the member had less than 5 years service. And this changed to 2 years for leavers on or after 6th April 1988.

So anybody who had a refund of contributions from a contracted-out scheme, having left the scheme on or after 6th April 1988 with less than 2 years service, or less than 5 years service having left before 6th April 1988, should be checking their record.

Anyway my question to you remains, how from your experience does someone go about identifying if their record is correct for their 2/5 year refund periods?

DairyQueen

SnowMan wrote: »

So anybody who had a refund of contributions from a contracted-out scheme, having left the scheme on or after 6th April 1988 with less than 2 years service, or less than 5 years service having left before 6th April 1988, should be checking their record.

Anyway my question to you remains, how from your experience does someone go about identifying if their record is correct for their 2/5 year refund periods?

It isn't easy (no surprises there).

DWP holds a detailed record of the periods of contracted-out and contracted-in employment, indexed by NI number. The guy I spoke to at DWP gave me the complete breakdown of my record over the phone. No values or employers, just the dates of employment and whether contracted-out or in.

From a combination of memory and old pay-slips I created my own record of employers and pension schemes, and reconciled that against DWP's records. It was obvious that there were discrepancies. DWP had me contracted-out for periods when I knew that I had no alternative pension benefits.

These weren't the only errors. They had one entire period of employment with no record of any NI contribution at all.

The DWP guy advised that DWP records are received from HMRC. I called HMRC. HMRC hold a detailed record of all NI payments received. This includes information on SERPS deductions and the pension schemes that have received the SERPs benefit.

HMRC gave me the detail of periods of SERPs and the names of the schemes. During the conversation I discovered that they had no record of any NI having been paid during one employment period despite my having paid tax under PAYE. Finally, they had me contracted-out into two pension schemes for one period that overlapped.

I then had to contact the pension schemes of the employers. Two confirmed that they had paid the CEP to HMRC and gave me the dates of the payments. Two had no record of having paid.

The problems were finally identified:
1. On two occasions HMRC had received a CEP but had not informed DWP.
2. On another two occasions the employers had not paid the CEP to HMRC and HMRC are only made aware that a CEP is due when the employer pays it. An interesting system.

So, I had four short periods of service (each of under two years) where DWP had me contracted-out of SERPs, although HMRC had me contracted back in for two of those periods. As DWP calculates the starting-amount all four periods had been excluded from the calculation..

I also had to contact the two pension schemes that had me contracted-out to both for the same period of employment. The problem here was the result of a takeover. I was an existing member of the DC scheme operated by a company that was then taken over by another which ran a DB scheme. I was never enrolled in the latter but that company had informed HMRC that I was.

All issues, and the actions I had taken - including names and contact details of pension scheme administrators - were then included in a long letter to HMRC. I received a holding letter around 10 days later promising a detailed response within eight weeks.

I heard nothing for several months. I called HMRC again. This time I received the promised response around 6 weeks later. One issue remained unresolved but the rest had been correctly reconciled. The o/s issue made no difference to my reaching the maximum nSP within the following tax year so wasn't worth investing any more effort.

I have no idea how much each of the resolved issues contributed to the increase in the starting amount. The values were never revealed.

It is significant that, over a period of two decades, all four CEP payments were either never paid, or were never reported to DWP. It suggests that such payments were routinely omitted from DWP's records. If so, this would reduce the SP for all of those effected, including those who reached SP age before the rules changed.

SnowMan

Thanks for the detailed and very illuminating explanation. I'm sure that's super useful for anybody looking to challenge the contracting-out component (COPE or SERPS/S2P) of their starting amount calculation.

Totally amazed how you've challenged the government departments here and got things resolved, you must have some amazing skills to do that :T

DairyQueen wrote: »

It is significant that, over a period of two decades, all four CEP payments were either never paid, or were never reported to DWP. It suggests that such payments were routinely omitted from DWP's records. If so, this would reduce the SP for all of those affected, including those who reached SP age before the rules changed.

That's absolutely the conclusion I would come to also. As you say this wouldn't just affect those coming under the new state pension, but also those reaching State Pension Age before April 2016.

grnglide

DWP holds a detailed record of the periods of contracted-out and contracted-in employment, indexed by NI number.

The records are actually held by HMRC and are only passed to DWP when they need them - when a claim for benefits is made, when customer is approaching SPa, when a pension forecast is made by the Future Pension Centre etc.


These records were originally maintained by the Contributions Agency (part of DSS at the time) and this was merged when HMRC was set up.


They were held in the NIRS system which was replaced be NIRS2. This was a disaster (overseen by Arthur Anderson - later Accenture). Loads of data was lost, claims had to be processed manually, compensation was paid to claimants as the latest contributions was not available resulting in incorrect benefits being paid.


The data is now held in the NPS system and Accenture is still has a hand in running it!


At the time I knew of many people in DWP who obtained data protection prints from the NIRS because they had no faith in the new system.


Remember this is the only system that holds the records data for all NI paid. It is next to impossible to work out what happened in the 70s, 80s and 90s!

DairyQueen

SnowMan wrote: »

Totally amazed how you've challenged the government departments here and got things resolved, you must have some amazing skills to do that.

Alas, I'm not possessed of any special skills.

This forum taught me the meaning of COPE and how contracting out impacts both the old SP and the nSP starting amount. I was therefore aware of the basics before contacting DWP.

DWP deserves praise for revealing and explaining their records. They also pointed me toward HMRC. HMRC was a challenge as the service rep there didn't understand the issues. I gave up trying to explain but they were, at least, willing to provide the information that identified the pension schemes I needed to contact.

As has been explained by gmglide. HMRC are the holders of the 'master' records and DWP are entirely dependent on their accuracy. DWP are also dependent on receiving timely records. My experience suggests that there were differences between the two record sets at the point that the starting amount was originally calculated for me. I doubt that I am an exception.

Plaudits to the pension admin teams at British Airways and Tesco. Immaculate records, quickly accessed, and informed staff. No surprises that these two companies had both paid their CEP. Ex-employees of these two should find checking easy. One phone call to each in my case.

Trafalgar House required emails and a few weeks of back-room investigation, but they got there eventually. Same applies to Old Mutual.

The toughest by some margin was a member of the LGPS. Trekking through treacle. Three phone calls and a letter. Never spoke to anyone who understood how SERPS worked. No promised call backs and the issue was never resolved with them. As far as I know they never made their missing CEP payment. Relieved that it made no difference to the outcome for me but others may not be so lucky.

The whole saga took around a year but I have now recovered the equivalent of four years of NI contributions. Well worth the time invested.

xylophone

The toughest by some margin was a member of the LGPS. Trekking through treacle. Three phone calls and a letter. Never spoke to anyone who understood how SERPS worked.

Clearly all their pension administrators were not as knowledgeable as
Silvertabby!

Silvertabby

“ The toughest by some margin was a member of the LGPS. Trekking through treacle. Three phone calls and a letter. Never spoke to anyone who understood how SERPS worked.

xylophone wrote: »

Clearly all their pension administrators were not as knowledgeable as
Silvertabby!

Thank you, kind sir!

Seriously, this was one of my 'specialities' but I wasn't asked to pass on my knowledge to anyone else when I retired because it was deemed no longer necessary.

Wasn't always easy, though, and sometimes impossible to resolve. In the case of really old records (over 20 years) , it meant rootling round in the basement for the old paper file, which only gave the date and amount of CEP paid for that person. Unfortunately, CEPs were paid in bulk (by the accounts dept) - so HMRC would have been sent a total payment of £XXX and a list of names with the individual amounts. This meant that when I told HMRC that we had paid £X in respect of Mrs X on xx/xx/xx, they would come back with a demand for the cheque number, the total amount paid and the names and NI numbers of at least 3 other people on the list. That list was rarely still available, but HMRC wouldn't budge.

On the other hand, some people may have benefitted. When someone left the LGPS with insufficient service to qualify for pension benefits, the record was 'frozen' and the CEP paid across to HMRC (see above). If they then opted for a refund of contributions (as most did) there was no further action to take (except see above). However, in the case of rejoiners, the procedure was to write to HMRC to ask for the repayment of the CEP as the service it related to was now back to being contracted out. Let's just say that not all of these letters may have been sent......

DairyQueen

Silvertabby wrote: »

Thank you, kind sir!

Seriously, this was one of my 'specialities' but I wasn't asked to pass on my knowledge to anyone else when I retired because it was deemed no longer necessary.

Wasn't always easy, though, and sometimes impossible to resolve. In the case of really old records (over 20 years) , it meant rootling round in the basement for the old paper file, which only gave the date and amount of CEP paid for that person. Unfortunately, CEPs were paid in bulk (by the accounts dept) - so HMRC would have been sent a total payment of £XXX and a list of names with the individual amounts. This meant that when I told HMRC that we had paid £X in respect of Mrs X on xx/xx/xx, they would come back with a demand for the cheque number, the total amount paid and the names and NI numbers of at least 3 other people on the list. That list was rarely still available, but HMRC wouldn't budge.

On the other hand, some people may have benefitted. When someone left the LGPS with insufficient service to qualify for pension benefits, the record was 'frozen' and the CEP paid across to HMRC (see above). If they then opted for a refund of contributions (as most did) there was no further action to take (except see above). However, in the case of rejoiners, the procedure was to write to HMRC to ask for the repayment of the CEP as the service it related to was now back to being contracted out. Let's just say that not all of these letters may have been sent......

Thanks for this. Very interesting to hear how things operated from the inside. I think the LGPS could still benefit from your expertise. I wonder whether they would consider offering you a consultancy contract?

Moonwolf

I'm confused.

According to the Government website I am entitled to full pension. I have 36 years full NI (including 16,17 and 18) and 3 years when I didn't earn enough while I was a student or not in the UK.

I have a COPE amount of £46.45.

I have been contracted in and out over the years. Between 1987 and 2016 I was contracted out for 20 years into 2 different private schemes, although I can't see that on the Government website.

From this site, State Pension: How Much Will I Get it says "What counts is 35 years of full contributions – not ones where you paid a lower NI rate."

So why do I qualify for the £168 already, why are all those years full (not that I'm complaining, just worried it is wrong.)

silverwhistle

Silvertabby wrote: »

On the other hand, some people may have benefitted. When someone left the LGPS with insufficient service to qualify for pension benefits, the record was 'frozen' and the CEP paid across to HMRC (see above). If they then opted for a refund of contributions (as most did) there was no further action to take (except see above). However, in the case of rejoiners, the procedure was to write to HMRC to ask for the repayment of the CEP as the service it related to was now back to being contracted out. Let's just say that not all of these letters may have been sent......

I was thinking what a useful if confusing thread this was but glad I kept reading. I'm about to reclaim some LGPS contributions as the EFL and MFL I did never reached the minimum and then I pootled off abroad for a bit. (Let's go nowhere near the Italian INPS system!). Apart from completing the reclaim form do you advise any other action? Thanks.