Pension query

monseiur

This is my first time posting here, hope I'm in the correct discussion group

My aunt is paying into a defined pension scheme for a long no. of years. Last summer she received an email from HR department stating that due to an error in payroll dept. she was not paying the correct rate of pension for years, it seems that she was paying a lower rate of 5% instead of a higher rate of 6.5%. Since the error was discovered she's paying the high rate. So to rectify matters she has to pay back a huge sum of €14,600.00 She has an option to pay it back in monthly installments over a no. of years and get some minor income tax benefit or wait until she retires and the total sum due will be deducted from her pension lump sum.

So the query is, should she have to pay this back seeing that the error was 100% the employers fault ? Would taking a case to, say, the Labour Court or similar be worthwhile. Any precedence that she could refer to ? Thanks.

JPup

To be clear, is it a defined benefit (DB) scheme as opposed to a defined contribution (DC) scheme?

It sounds like it is a DB scheme and I'm guessing some agreement was made post financial crisis that employees would pay in a 6.5% contribution which was incorrectly set at 5%. Very poor from the administrator but I can't imagine a court forcing the company to cover the cost of a mistake like this.

Ultimately, your aunt has been putting less money into her retirement savings than she had thought. She will consequently have a reduced lump sum upon retirement, but she has had the benefit of a 1.5% higher salary for several years as compensation.

Is she on her own in this, or are other employees affected? Any union to consult?

cuttingtimber22

I would say yes she does have to pay back and going to the labour court would not achieve anything but if she has doubts she should contact her union and get advice.

For me, the key question is in respect to how she wishes to pay back (and the tax relief depends on what rate of income tax she pays). Does she need the money now or does she decide that the lump sum option is better and manage expectations.

The main thing she will need to do is to get it in writing.

Others may recommend a more adversarial approach. I would not as it is draining and can damage the relationship with her employer.

in terms of how this happened, if it is public sector, I suspect the 1.5% contribution for the widows and orphans scheme was not processed.

walterking

doesn't matter whose fault it is, it has to be paid back.

Do a reverse situation where your aunt overpaid and your aunt didn't notice for a few years - would you think it was fair that it was a case of tough luck?