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The Actuary The magazine of the Institute & Faculty of Actuaries

Ex-police and firefighters wait 15 years to receive full pension entitlement

The UK government’s failure to understand its pension obligations resulted in retired police and firefighters having to wait up to 15 years for their full pension entitlement, according to a National Audit Office (NAO) report published today.

Pensions underpayment for 34,000 police and fire service personnel ©Shutterstock
Pensions underpayment for 34,000 police and fire service personnel ©Shutterstock

It reveals that the government was aware in 2006 that the commutation factors used to calculate the affected individuals’ initial pension lump sums did not reflect the life expectancy of pensioners or the underlying trends across pension schemes.

However it took the Pensions Ombudsman’s finding of maladministration in the Government Actuary Department (GAD), and subsequent upholding of the pensioners’ complaints in 2015, for £711m in compensation to be paid out last year.

Committee of Public Accounts chair, Meg Hillier, said: “The government’s failure to update its pension calculation data resulted in an underpayment of pensions for 34,000 police and fire service personnel between 2001 and 2006, totalling £711m.

“Whilst these underpayments in themselves are concerning, what is even more alarming is that these personnel have had to wait up to 15 years to get their full pay outs when the problems were picked up early on.”

The ex-police and firefighters each received an average of £21,000 compensation, which equates to increases of 5-36% of the lump sums they received initially.

The NAO report argues that there was a lack of independent oversight of the pension schemes while this dispute was taking place, which was only addressed in April 2015 with the introduction of pension boards.

It states: “During the period when this arose, there was a lack of independent oversight of the schemes by parties outside government.

“Pensions can be complex, and individual scheme members need support and appropriate representation to ensure that they understand their arrangements and can make the right decisions regarding their retirement.

“The commutation factors used by actuaries to calculate lump sums in accordance with scheme rules are one such complexity and have a significant impact on the pension benefits received by members.”

The GAD have since reviewed its funding mechanisms and internal controls to ensure its statutory duties, such as the review of commutation factors, are clearly understood and discharged.