Pension overpayment - provider wants to take back £20k

Pat38493

Sea_Shell said:

Interesting.

DH had a statement from his DB scheme(s) on leaving, and he's been trying to update the annual adjustments, as per the scheme rules on a spreadsheet.   Most people won't do that.   We'll see at the time how close we get to their figures 😉

Even if they're a bit out, it could still end up as an unpleasant shock if down the track they want even just £50 x 12 months x 5 years back (for example).   You'd likely never know if you'd been underpaid!! 

Especially if someone only has that plus SP to live on. 😞. (we don't)

The first thing to check is whether he has the detailed information about any different tranches in the pension which might be treated differently for :
- Revaluations before and/or after putting into payment.
- Retirement age for that part of the pension.

When my pension was deferred in 2008, I was just given a single number for the deferred value.  I only found out in the last couple of years that there are actually 3 parts to my DB pension - one of them has an earlier retirement age and one of them has different revaluation rules after putting in payment.

Obviously then you have to monitor for obvious issues in estimates you are sent - one estimate I was sent a couple of years ago used a commutation factor of 40 for the optional PCLS which could not possibly be right.

On top of these, administrators seem extremely reluctant to provide their detailed workings about how they calculate these things.

Cbu0210

MeteredOut said:

Pat38493 said:

I don't disagreee @xylophone except that I don't think pension trustees normally have the technical skills to make, or even check, these estimates and I don't think any but the largest pension scheme is going to employ an actuary to do it directly - my impression is that the outsource these tasks.  

Also - the above quote says that it's the responsibility of the trustees to make the decision on which the calculation is based, but this still leaves it open as to who is liable if the calculation, as defined, is done wrong.

I agree that it's scandalous that pension schemes try to force the member to pay back these items, except in cases where maybe it should have been completely obvious to everyone that a mistake was made (10 times the amount or whatever).

OP, is the £20K a significant portion of the overall payout. You said "It wasn't a huge amount to begin with".

eg, if it was 50%, could the trustees state that it would be obvious it was an overpayment?

Hi. I see what you're saying - I think what I said there was a bit misleading, apologies for that. I meant the sum wasn't a huge amount in terms of the amounts a couple of friends had received when doing the same thing (although to me it was almost life changing in what it allowed me to do). I think it's around 12-13% of the original amount, so I guess it's not a significant amount overall, and I don't think they could state it was obvious - my FA never questioned it and he's been in the business for nearly 40 years?

xylophone

On top of these, administrators seem extremely reluctant to provide their detailed workings about how they calculate these things.

Then they must be told to cough up!

https://forums.moneysavingexpert.com/discussion/6454555/pre-1988-gmp-fiasco/p4

xylophone

I have a small DB pension from my first job. For much of the employment I was under 25 so couldn't join the DB bit so I was in a DC type scheme. For years I could look up the values of the 2 parts online with various slide bars to play with tax free sums, retirement age and the like. A couple of years ago Barnett Waddingham took on the administration and their figures are significantly different. They also report on the 2 parts completely separately most of the time and then at random intervals send me letters which imply that the under 25 bit will be used to prop up the DB GMP bit. I am not a stupid person but I cannot understand it or check the figures. BW cannot answer why the numbers are different to the old provider numbers - they just say that they are right! If it turns out later that they are wrong I would be pretty miffed, but unsurprised. On the basis of their documentation I still can't work out if I even get both parts - it is that unintelligible. I have 4 years till I reach NRA so I will get to the bottom of that aspect before then but I don't look forward to the pain it will take to get there.

Did you see this thread?
https://forums.moneysavingexpert.com/discussion/6454555/pre-1988-gmp-fiasco/p1

Cbu0210

LHW99 said:

I transferred to a private pension plan, after taking professional advice based on the transfer value I was offered.

Have you had any contact from the adviser regarding this, or only from the DB pension Co?

Yes, I've spoken to my FA, and he's been really good in helping me to draft my complaint. He is of the opinion, as some have said on here, that the administrators/actuaries should have some kind of liability insurance in place to cover mistakes like this, and that it is unfair to expect to be able to clawback the overpayment. I think he and his colleagues are in shock to, if I'm honest - he's said they've never heard of this happening before, but one of his associates has come across it once. 

Sea_Shell

To make a comparison...

If we try and equate £20k lump sum overpayment to an error on a monthly DB pension, it might work out as ~£65 a month, from age 60 for 25 years.

Doesn't seem much when you break it down.

What probably stings is being asked for the whole lot back out of the blue. 😞

MarkCarnage

I think it's around 12-13% of the original amount, so I guess it's not a significant amount overall, and I don't think they could state it was obvious 

So the original quote was about £160k and they now say it should have been about £140k? I would agree that this is not at all obvious - discount rate movements alone can move the dial by a lot more than that as we've seen in last couple of years. Also, the scheme rules around inflation indexation, spouse benefits etc etc can all make a significant difference. Members receive these in an information vacuum effectively and have no way of ascertaining the accuracy to this level without very detailed knowledge of the assumptions and workings. 
It's a bit different for checking what your expected pension in payment should be in nearly all cases - you should be able to track a pretty accurate estimate of it as noted by others above. CETV is a different ball game altogether. 

Pat38493

MarkCarnage said:

I think it's around 12-13% of the original amount, so I guess it's not a significant amount overall, and I don't think they could state it was obvious 

So the original quote was about £160k and they now say it should have been about £140k? I would agree that this is not at all obvious - discount rate movements alone can move the dial by a lot more than that as we've seen in last couple of years. Also, the scheme rules around inflation indexation, spouse benefits etc etc can all make a significant difference. Members receive these in an information vacuum effectively and have no way of ascertaining the accuracy to this level without very detailed knowledge of the assumptions and workings. 
It's a bit different for checking what your expected pension in payment should be in nearly all cases - you should be able to track a pretty accurate estimate of it as noted by others above. CETV is a different ball game altogether. 

The other question is whether the pension trustee or admin saying you have been over paid, should be the final word on the matter? Is there an official "correct" way of calculating the number so that some central authority could say - yes this number is out by £20K?  I don't think so is there?  Isn't it possible another similar scheme could have different assumtions that means the original estimate was correct?

So I guess they also should have to show that the error was due to an error of fact that was fed into their model rather than just they decided to change their assumptions at one or other point in time.

MarkCarnage

Pat38493 said:

MarkCarnage said:

I think it's around 12-13% of the original amount, so I guess it's not a significant amount overall, and I don't think they could state it was obvious 

So the original quote was about £160k and they now say it should have been about £140k? I would agree that this is not at all obvious - discount rate movements alone can move the dial by a lot more than that as we've seen in last couple of years. Also, the scheme rules around inflation indexation, spouse benefits etc etc can all make a significant difference. Members receive these in an information vacuum effectively and have no way of ascertaining the accuracy to this level without very detailed knowledge of the assumptions and workings. 
It's a bit different for checking what your expected pension in payment should be in nearly all cases - you should be able to track a pretty accurate estimate of it as noted by others above. CETV is a different ball game altogether. 

The other question is whether the pension trustee or admin saying you have been over paid, should be the final word on the matter? Is there an official "correct" way of calculating the number so that some central authority could say - yes this number is out by £20K?  I don't think so is there?  Isn't it possible another similar scheme could have different assumtions that means the original estimate was correct?

So I guess they also should have to show that the error was due to an error of fact that was fed into their model rather than just they decided to change their assumptions at one or other point in time.

This is the official guidance from TPR.....

https://www.thepensionsregulator.gov.uk/en/document-library/scheme-management-detailed-guidance/administration-detailed-guidance/transfer-values

There is no single official correct way essentially, but different ways of legitimately arriving at a best estimate for each scheme. A key variable is the discount rate applied, which is very closely linked to gilt yields at the duration of schem liabilities. This didn't used to change significantly very frequently, but the rapid and very significant rise in gilt yields in the last year or two has meant very meaningful changes to TVs even on a month by month basis at times. 

it's very difficult tell where they've made an error or why. It might be a 'stale' discount rate, it might be 'stale' assumptions on other factors, or incorrect input of the member's pension data. 

The differences in TVs can appear very large between different schemes for seemingly similar pension levels....which is why the OP had no real chance of knowing that there had been an error here at outset. Much easier to identify if they mis state the annual pension to be paid at point of payment....at a guesstimate here it might equate to a misstatement of almost £1k on an £8k pension which I'm sure would be noticed by most. It's the calculation of the capitalisation of the pension into a capital sum which is the bit where there are so many (different) moving parts. 

Cbu0210

Hello everyone.

Many thanks for your comments and advice on my question, I'm very grateful to you all for taking the time - it's really helpful and I've taken a lot on board. 

I understand the argument that I should only have received what I was entitled to and, had the error come to light much sooner, then I would have been in a much stronger position to be able to pay the amount back, perhaps even taken an option to return to the original scheme.

However, because it's well over five years later and I've withdrawn the full lump sum as well as taking a small pension to supplement my income and allow me to take on a mortgage, the original pot has decreased quite significantly, and so taking that amount back now, certainly as one lump sum, would have a much bigger impact.

As I mentioned in my original post, there will also be a tax implication because the lump sum I received is larger than that I would've received on the revised figure. That may well cause financial difficulties for me, depending on how much is owed, which could affect my ability to continue paying my mortgage, and that is quite frightening.

I think the moral argument goes both ways. This was not my error - I had no reason to doubt the offer value, neither did my FA. I was offered the transfer value in full and final settlement and took that in good faith. Nowhere in the paperwork does it say that there is an option to take money back if a mistake was found at a later date.

I understand that the trustees have an obligation to the Trust to attempt to retrieve the overpayment and why they are doing what they are doing, but I do think the liability lies with them, at least in part, in cases like this. 

I don't understand why they are not pursuing the actuaries for compensation - for this to have come to light after so long and to go after individuals who, as in my case, have made life-changing decisions based on that final settlement I do think is wrong. 

I can see both sides - it's just a horrible, very stressful situation to be in.

I've submitted a complaint and that has now been acknowledged, so I will await the outcome and I will update this thread for anyone who's interested.