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'Local government pensioners should not pay for admin cock-up'

Stephen LLoyd
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Lib Dem work and pensions spokesperson Stephen Lloyd is campaigning to curb pension clawbacks. He explains why

I’m sure I am not alone in occasionally contemplating, years from now, a retirement shorn of stress and worry, basking in the glow – hopefully – of a life’s labour done well.

The last thing anyone in such a position would want to worry about, assuming they had prudently set aside money for their pension over the years, is whether or not that amount should suddenly change – and not through any fault of their own but through a series of mistakes made by others.

Yet this is precisely the fate many local government employees could face in the years ahead unless the government intervenes.

The issue that is about to get much worse if left unchanged is that from the late 1970s until 1997 employers who offered defined benefit pensions to their workforce had the option of contracting them out of the additional state pension, so long as the scheme paid a comparable guaranteed minimum pension.

The benefit of taking this course of action was that both the employer and their employees had their National Insurance contributions reduced. This was, at the time, seen as a good thing and taken up by many local authorities.

Then, in April 2016, the state pension was reformed again to introduce two tiers.

The consequence of this is that some people receive the full flat-rate pension, while others receive a different amount based on their National Insurance contribution history, the theory being they had received the money elsewhere as part of contracting out.

It has come to light that many staff who contracted out of the state pension, and who should have received a lower amount in retirement income, did not. It appears, and here’s the rub, that information on who had actually opted out was collated and inputted manually from 1978 to 1997, and numerous clerical errors were made as the data was inputted.

Consequently, without accurate records existing for many retired workers, some have been paid larger pensions than they were eligible for. Despite this being no fault of their own – it was, after all, a government admin cock-up – many of these individuals face attempts to have the payments clawed back.

What’s more, the problem is only likely to get worse, as since 2012 there has been no requirement from HMRC for pension providers to collect data on those contracting out, and six million who transferred into a personal pension since then have no such records.

Shades of Kafka, or Catch 22?

To try and shed some light on the issue, I have written to the secretaries of state for health, education, and housing, communities and local government to urge they not proceed with attempts to claw back pension overpayments for affected employees in their own departments.

There is a common-sense precedent here as, to date, the civil service pension scheme – which has more than half a million members – has confirmed it will not seek the return of pension contributions its members received in error, an amount which totals £22m.

Such amounts in a vast scheme the size of the civil service pension pot show just how small, relatively speaking, the amount of overpayments any individual employee may have received.

My view is that chasing retired people, some likely to be vulnerable, for such small amounts which, let’s not forget, are a consequence of actions the government got wrong, is unfair.

It is simply wrong for the government, or for individual local authorities, to try to claw back this money in such invidious circumstances.

Furthermore, by doing so the government would essentially be profiting from its own past failures around its data collation. This would set a precedent, allowing governments of whatever stripe or colour to inoculate themselves from their own incompetence, which is palpably absurd. I can also just see the headlines as up and down the country aggrieved former pensioners take to the media.

Consequently, I will be calling on ministers to do the right thing and drop any further moves toward clawbacks. I’ll also be asking how they intend to prevent this whole sorry episode from getting much worse, as a consequence of the millions who opted out post-2012 with inadequate records.

We all understand that in life there are consequences for our actions, in fact pretty much every political party preaches that particular trope in every election manifesto. So, my response to HMG on this issue is: “Practise what you preach – you got this wrong and you made the mistake, so leave well alone.”

Stephen Lloyd MP, work and pensions spokesperson, Liberal Democrats

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