Thousands in pension limbo after Revenue flunks maths

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The Independent Online

The Government is delaying payments to thousands of workers who have already lost large parts of their retirement income.

The Government is delaying payments to thousands of workers who have already lost large parts of their retirement income.

Under "deemed buy-back" legislation, the Government is meant to give a guaranteed minimum pension (GMP) to members of those pension funds wound up because they have insufficient assets. In effect, this reinstates them in the state pension scheme.

Payments are only made to those in the worst-off pension schemes, where the beneficiaries are likely to have lost almost all their pension pots. At least 60 schemes, with as many as 10,000 beneficiaries, are understood to be affected.

However, the mechanism for calculating the payments changed when the Government introduced the State Second Pension in 2002. The department that deals with deemed buy-back, which is part of the Inland Revenue, did not update its calculations or adjust its computer systems.

This meant that when schemes applied for deemed buy-back they were left in limbo. Trustees for some schemes have told The Independent on Sunday that they have been waiting since late 2002 for the civil servants to process their application.

Stephen Scholefield, a partner at lawyers Pincents and a trustee of two schemes that are being wound up, says he applied for deemed buy-back in December 2002. "They said we appear to meet the criterion but they were not in a position to move forward. We were told there were various policy decisions needed."

The pensions group Alexander Forbes, which is the trustee of a number of schemes in wind-up, said it was told the Revenue's computers could not process applications and all work was being done by hand. It added it believed the situation would not be resolved until April next year at the earliest.

According to the trade publication Pensions Week, the Pensions minister Malcolm Wicks admitted earlier this year that 59 schemes had applied for deemed buy-back, with 33 formally requesting calculations. At that point only eight had been given information.

On Friday, the Revenue released new figures showing 43 schemes had formally requested calculations and that it had processed 21 of them. It had no figures for those schemes that had applied for deemed buy-back but denied that these calculations were having to be done without the computer.

The Revenue blamed the Department for Work and Pensions for the delays, saying that the regulations needed for the calculations had yet to be placed before Parliament. The DWP is saying the regulations had been held up because of the work needed to bring the new Pensions Bill before Parliament.

To muddy the waters further, the Revenue issued an information update in May, which appeared to sanction partial buy-outs of the GMP through the purchase of annuities from insurance firms. This astonished pension experts because it would mean that beneficiaries would receive less then they were entitled to under law.

Ros Altman, a pensions campaigner, said: "Who can trust the Government, if its 'Guaranteed Minimum Pension' turns out to be neither 'guaranteed' nor a 'minimum'?

"The members trusted the system, trusted government assurances, and then find they would have been better off burning their money, or giving it to charity, than putting it in a company pension."