Could you be at risk of facing state pension cuts?
State pension payments are being reduced in the UK and droves of retired workers are experiencing slashes nationwide. What caused this unexpected development? Well, during a government drive to clean up old records, overpayments were uncovered and, as a direct result, the HM Revenue & Customs (HMRC) launched a swift 'reconciliation service' that's designed to help companies match their employees' pension savings as well as employment histories kept by the government.
This initiative was concluded in December 2018 but its consequences continue to ripple out towards members of the public and can affect their financial stability as they retire.
For the most part, HMRC relies on its data to make sure that the correct amounts of state pension were made to those who were originally 'contracted out' of the additional state pension. Several companies had compared their data with HMRC's and realised that there were discrepancies in the form of overpayments to their various members. Due to this, retired workers have had their state pension payments cut to restore the finances that were mistakenly issued out.
How did this happen?
The issue stems partly from the Additional State Pension which was introduced as a second-tier top up pension in addition to the Basic State Pension. Prior to April 2016, employees could opt out of the additional pension if an employer offered a contracted-out pension scheme instead.
This led to something called a Guaranteed Minimum Pension (GMP), which basically meant that employers could save money in reduced National Insurance but had to commit to paying private pension employees the equivalent of what the additional state pension would issue.
Those eligible for GMPs would have their figures deduced from their state pension entitlement after the first round of calculations. Unfortunately, the calculations weren't that simple and information held by companies could date back decades which led to occasional errors.
After the reconciliation process, cases of underpayment or overpayment due to incorrect information had been uncovered by company pension schemes.
Are you at risk?
This new move by HMRC has led to thousands of retirees wondering when their pensions will be cut next. Their payments could potentially be reduced by hundreds of pounds a year (which has left many people unsure about their financial stability).
For now, the amount of people who could see a reduction in their state pension remains unknown. Experts have estimated that tens of thousands could be affected by this unexpected cleanup.
Pensioners have seen cuts that are as high as £815 a year, which roughly equates to £15 a week. Others have seen slightly less being tapered off their usual pension incomes. Either way, many people are unhappy about the impending trouble.
In times like these, retirees and pension holders can find themselves in dire need of financial advice. Sometimes, political or economic situations can’t be helped, which means financial management may be extremely crucial if you want to establish a future that is more secure. Consider seeking guidance from a financial advisor so you can have a better idea of your options.