UK - Lawyers are urging HM Revenue & Customs to review its policy of "writing off" pension overpayments following confirmation HM Treasury could cancel £1.7m in errors by the Ministry of Defence.

The MoD has confirmed during a review of its pension scheme files it noticed a clerical error had resulted in almost 100 veterans receiving pension overpayments estimated to be worth approximately £1.7m.

Although the MoD has contacted the pensioners concerned to alert them to the mistake, it confirmed it has not requested the individuals repay the money but is instead "in discussions" with the Treasury over whether it is possible to "write-off" the debt.

Law firm Allen & Overy has warned if the Treasury does decide to cancel the £1.7m debt it will create a greater divide between the public and private sector, as HMRC will currently only overlook pension errors that are valued at less than £250, based on its own administration costs.

Giannis Waymouth, senior professional support lawyer at Allen & Overy, pointed out if a scheme makes an accidental pension overpayment it would, at present, be subject to a 40% unauthorised payment charge, a 15% surcharge and a further 40% scheme sanction charge if it will not, or cannot, recover the money.

"HMRC's position is that the scheme should get the money back and if you don't then it is treated as an unauthorised payment and it is subject to these additional tax charges. If it's okay for the MoD to write off overpayments, why should HMRC penalise other pension schemes?" she added.

In addition, Waymouth said schemes still need to complete various reporting processes before they qualify for the £250 "let-off", but before the Pensions Simplification legislation was introduced in April 2006 it used to be normal for trustees to write-off small amounts of moneys, up to a couple of thousand pounds.

As a result, the law firm claimed, the charges mean a "vast amount of work" is being spent in correcting overpayments that are generally "tiny systematic errors" which could potentially go back decades.

Waymouth said: "It is a huge amount of work for a small amount of money, and it's making a difference to the administration burden for schemes. It appears to be one rule for the public sector and one rule for the private sector, and HMRC needs to look at loosening up the thresholds and the tests to give us a level-playing field."

A spokesman for the MoD said: "Once the advice from the Treasury has been received we will inform the people concerned. But it is likely the process will not be resolved until March or April."

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