Personal Finance

Pension payback scandal: are you affected?

Tens of thousands of people whose pensions have been wrongly overpaid for years are now being ordered to give back the money, according to a new report.

The Daily Mail’s financial site This is Money found that sweeping reviews of pension calculations have revealed that some pensioners were overpaid or underpaid for decades.

“Now, many have been hit with sudden demands for money they had no idea they were not entitled to and trapped in lifestyles they can no longer afford,” says the site.

Where did the problem originate?

A lot of the errors stem from a change made four decades ago to the government pension system.

In 1978, the government introduced a second-tier top-up pension, in addition to the basic state pension, which offered a flat rate on retirement, with citizens who had racked up 30 years of National Insurance (NI) contributions receiving the full amount.

The top-up pension was originally called the State Earnings Related Pension Scheme (Serps), before being renamed the State Second Pension in 2002, and was based on how much you earned.

The current problem is largely the result of a provision allowing employees to “contract out” this top-up pension, explains the Which? site. “This meant paying lower NI contributions and giving up the additional pension to put the money towards a workplace or private pension instead,” says the consumer rights watchdog.

In return, the workplace pension scheme had to provide a guaranteed minimum pension (GMP) to the employee.

What went wrong?

The option to contract out a second-tier pension was scrapped in 2016, prompting company pension schemes to reconcile all their records.

“Pensions schemes began to compare data with HM Revenue and Customs and found many mismatches – mainly due to poor record-keeping and human error,” says This is Money.

“Many final salary and state pensions pay packages have now been cut as a result of discrepancies uncovered.” 

The site adds that “the Civil Service Pension Scheme alone, which has one million members, found 10,000 pensions with errors and overpayments of £22m”.

Are you affected?

According to, you can check if your pension was contracted out by checking your payslip or contacting your employer or pension provider.

You are more likely to have been contracted out if you worked in the public sector, but private sector workers may also be affected.

The State Pension Forecast service can also help you identify how much state pension you could get and when you can receive it.


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