RPSM09108010 - Technical Pages: Member benefits: Payments covered by Regulations: Pension payments made in error

Pension payments made in error

[Regulations 13 and 14 of the Registered Pension Schemes (Authorised Payments) Regulations 2009 - SI 2009/1171]

These regulations can apply to payments of both a member’s pension as well as to payments of a dependant’s pension. 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 RPSM11100080. 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.

Regulation 13

This provides that if all or part of a pension payment is made in error (typically this will be an overpayment of pension), so much of the payment as was made in error, can be treated as an authorised member payment providing the following conditions are met:

• the payment was genuinely intended to represent the payment of a pension permitted by the pension rules or the pension death benefit rules, as appropriate, and
• the payer believed that the recipient was entitled to the payment, and
• the payer believed that the recipient was entitled to the amount of the payment that was paid in error.

If however the error relates to the recipient having died, e.g. overpayment due to not having been aware of the death, this regulation does not apply - see RPSM09108020.

Regulation 14

If the discovery of the error (e.g. overpayment) occurred before the payment was made, the payment may still qualify as an authorised payment under this regulation. This provision starts with two possibilities:

• The first is where the payment in error is actually a further pension payment made after payment(s) made under regulation 13. Those earlier payment(s) must have been of a similar nature to this one, been paid to the same recipient and been provided in similar circumstances (apart from the fact the error has now been discovered).
• The second applies where there was no earlier payment error under regulation 13. It only applies to cases where the payment(s) would have been covered by regulation 13 if the error had not yet been discovered.

If a payment comes within one of the above two possibilities, then it must meet one or more of the following conditions to be an authorised payment. The conditions are that:

• the payer took reasonable steps to prevent the error-payment being made, or being made in that amount, or
• the payment is made while the scheme administrator is taking a reasonable amount of time to consider whether to change the rules of the scheme, so that such extra payments would in future be normal authorised payments under the tax rules, or
• the payment is made while the scheme administrator is taking a reasonable amount of time to change the rules of the scheme, so that such extra payments will in future be normal authorised payments under the tax rules.