Case details/context of the case:

• Deferred member of the DB Pension Scheme since 2009;
• March 2021 CETV Issued £600,000
• Transfer was completed in June 2021
• Client retired from employment in April 2022.
• November 2022 scheme had discovered an error in the calculation of March 2021 CETV.
• Scheme confirmed an overpayment of £100k.

Trustee subsequently confirmed that it has a duty to pay only the benefits due under the Scheme and suggested exploring potential options for recovery of the overpayment.

In subsequent correspondence between the Trustee, the client and your IFA it was explained that you irreversibly changed your employment position in reliance on the overpayment and in particular, your retirement planning had been premised on the amount of the March 2021 CETV which supported an approximate 30 year life plan.

Your IFA has explained that he would not have recommended a transfer based on the correct amount of the CETV, and you have stated that you would not have transferred‐out of the Scheme had the correct transfer value been provided.

What happens next?

Firstly, Reg 13/14/15 of The Registered Pension Schemes (Authorised Payments) Regulations 2009 [SI 2009/1171] includes various provisions where pensions are overpaid, which is also addressed in [PTM https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm062800]

Regulation 13 is particularly important here.

These provisions can apply where a payment is made in error so that there was no intention to make the payment (and it would seem likely that the scheme did not intend to make this payment) and it is not treated as an unauthorised payment.

The PTM is particularly helpful in it’s explanation and clarity:

“They are intended to enable payments that are made in circumstances involving both error and good faith to stand undisturbed by the unauthorised payment charges that would otherwise apply. Typically these will be over-payments, though the regulation can extend to other errors of mis-payment.

The effect of these regulations is that the over-paid / mis-paid pension can be accepted as an authorised payment and be taxed as pension income in the tax year in which any instalment is actually paid over. An error-payment may be just a part of a pension instalment, or it may be the whole of it, or it may even be a number of such payments.

These regulations do not create a BCE in respect of the over-paid / mis-paid pension. Realisation of the error may require the scheme administrator to revisit their responsibilities as outlined in PTM164000. For example, the scheme administrator may need to issue a revised statement to the member that shows the amount of lifetime allowance used up by reference to the amount of pension to which the member was actually entitled where a statement had been issued by reference to the over-paid pension.”

The key learn here is that overpayments do not necessarily and automatically result in repayment and/or unauthorised payments, but they do require some discussion about the tax implications for both the scheme administrator, trustees and member.

How we can help

Peter and John have extensive experience of dealing with regulators, scheme administrators and trustees (with both Peter and John having been trustees themselves). If you would like to discuss how we could potentially support your firm or your client, please do get in touch – we are always available for a virtual coffee.