Tens of thousands of retired workers in the UK could face cuts to their state pension after overpayments were uncovered during a government scheme to clean up old pension records.
HM Revenue & Customs (HMRC) launched a two-year 'reconciliation service' in 2016 to enable company pensions to match their employees' pension savings and employment histories against those held by the taxman.
Once companies have finished matching up their data with HMRC, they could find that they've overpaid pension to thousands of their pension scheme members.
Where there have been overpayments, current pensioners could get a reduction in their state pension.
This was originally called the State Earnings Related Pension Scheme (Serps) and in 2002 became the State Second Pension. Before the state pension reforms in 2016, employees were allowed to 'contract out' of this additional pension.
Employers, which saved money by paying lower National Insurance, had to promise that the extra company pension they paid would match the additional state pension their employee would have got if they had remained contracted in. This is known as the Guaranteed Minimum Pension (GMP).
The single-tier state pension was introduced in April 2016 and the previous system where you could 'contract out' of paying full NI contributions was scrapped.
HMRC holds data on everyone who has a GMP. When the state pension is calculated a person's GMP is deducted from their entitlement.
However, the information that companies hold on GMPs dates back almost 40 years, which means errors in calculations can creep in.
As a result, when company pension schemes match up their data with HMRC's, they could find that they may have overpaid, or underpaid, certain workers using incorrect information.
Let's take an example. Say your company pension scheme paid you a GMP, but it was not correctly recorded.
As a result of this, your state pension entitlement would end up being higher, as no deductions were made to account for the GMP that you received.
The effect of this could be that your future state pension payments are decreased to the correct level, taking your GMP into account.
The reconciliation service is due to be completed by December 2018, so the total number of people who may see a reduction in their state pension is not yet known.
Experts estimate, however, that tens of thousands of workers could be affected.
'We don't yet know exactly how many people will be affected because the records are still being checked', said Sir Steve Webb, director of policy at Royal London and former pensions' minister.
'But based on the schemes that have been checked so far, it seems plausible that tens of thousands of workers could see a reduction to their state pension.'
Unfortunately, due to the complex nature of the GMP system, it's near impossible to proactively check whether you're being overpaid state pension.
'There isn't much that people can do for now', said Steve Webb.
'It's almost impossible for the individual to follow the fine detail of all the GMPs they might have in their different pension schemes and exactly how these have fed through into their state pension.'
HMRC will inform you if your state pension entitlement might be affected because of GMP errors.
If your state pension has been overpaid, fortunately the government will not expect you to pay it back.
A spokesperson for the government has said that 'HMRC and pension scheme administrators determine whether the GMP figures are correct.
'However, where overpayments of state pension do occur due to incorrect GMP figures, individuals will not be expected to repay any overpayments.u201d'
While the government isn't going to make you repay any state pension overpayments, tens of thousands of workers could see their future retirement income take a hit.
'The good news is that the government isn't going to try to recover past overpayments of state pension,' said Steve Webb at Royal London. 'But unfortunately there will be some people who find that their state pension is reduced going forward.
'In most cases these changes, though obviously unwelcome, the reduction will be relatively modest but we could see some extreme cases where the change is more substantial.'.
While some pension schemes may try to recoup any overpayments, others may simply write them off.
The CSPS, however, decided to write these off and not reclaim the overpayments.
If an errors are uncovered during the reconciliation process, your pension scheme should keep you updated.
You can use the service to identify the following: