Page last updated at 23:10 GMT, Wednesday, 15 July 2009 00:10 UK

'Collective failure' hit pensions

Nurses
Nurses were among those who were overpaid

A "collective failure" by various public bodies led to a £90m overpayment of public sector pensions, according to the National Audit Office (NAO).

Retired soldiers, doctors, nurses and teachers were all affected by the administration blunder, with 31,000 set to see their income drop next year.

The report criticised tax authorities, pension schemes and support services for failing to take responsibility.

The number of people affected is expected to rise.

The NAO report revealed that five public sector pension schemes were still working through 26,000 cases.

Thousands overpaid

The overpayments began in 1978 and were caused by an incorrect indexation of pensions.

Warnings were first sounded years ago that there were problems but no one took responsibility for resolving them
Amyas Morse, National Audit Office

The pension schemes did not have Guaranteed Minimum Pension information recorded for some members, which meant they did not apply the correct annual cost of living increases.

The Guaranteed Minimum Pension was earned between 1978 and 1997 by workers whose pension scheme was contracted out of the earnings-related State Second Pension.

As a result, 85,000 retired public sector workers were overpaid £90.2m through their pension, and another 4,917 people were underpaid by £191,000.

The NAO report accepted that the system was complicated but found that it was "prone to error" and criticised HM Revenue and Customs, the five pension schemes, and the Pension, Disability and Carers Service for failing to ensure that it was administered properly.

Long-term problem

The errors, which affected 6% of pensions being paid to members over state pension age in the five schemes, occurred over many years.

Edward Leigh
Although these pension schemes were complicated to administer, the mistakes were entirely avoidable
Edward Leigh, Public Accounts Committee

Some of the missing Guaranteed Minimum Pension information went undetected for more than 20 years, the report found. Concerns were raised as early as mid-1990s, but the system had "broken down" in a number of ways, the report found.

"This is a sad case of public administration failure," said Amyas Morse, head of the NAO.

"Warnings were first sounded years ago that there were problems but no one took responsibility for resolving them.

"It is essential to prevent errors on this scale from happening again, but this will happen only if one party takes responsibility for the process as a whole."

The NAO has called for all the parties to work closer together as it feared that there was a continued risk of payment errors. It also wanted a review to consider whether the process could be simplified.

"Although these pension schemes were complicated to administer, the mistakes were entirely avoidable and happened because no one body had clear overall responsibility for the process," said Edward Leigh, chairman of the Commons Public Accounts Committee.

"All the parties involved shirked the responsibility of checking that the process was running smoothly. Each simply assumed that it was someone else's problem and so small hiccups led to almost 90,000 people being overpaid."



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