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I was working for a company under contract from 20th September 2021 to 31st October 2022 during which time I was an employee of an umbrella company as the contract was deemed to be inside IR35. I was paid via the umbrella company who also dealt with pension contributions. I received a letter from them (see content below) on 3rd April 2024 stating that due to a software error, they had made 2 overpayments to my pension provider and they are now demanding that the overpayments are repaid.

Accordingly, I would like to understand where I stand legally on this. Ethics aside, am I legally obliged to take the action they have suggested in the letter below and instruct my pension provider to start repayment process? I was never aware that they had made overpayments to my pension provider and if I have to repay the sum, this will mean having to sell an asset class in my SIPP to cover their mistake and reduce my somewhat meger pension pot even further. Does this fall under the estoppel principle?

Any advice on this would be warmly welcomed.

LETTER CONTENT

Dear Marlon,

RE: Pension Overpayment

I am writing to inform you that during your employment with Compass CE Ltd (on placement via recruitment agency Primis Consult Ltd) in 2022 an overpayment of £2,134.39 was made to your nominated private pension provider, Investor SIPP Trustees Limited. This overpayment was due to a software issue.

Specifically, two of your payments were required to reprocessed due to changes from the agency in payroll instructions, and on both occasions your pension contributions were incorrectly calculated by the payroll software. This occurred on 20/9/22 and 31/10/22. The software error has only just been discovered and reported to the provider.

I am very sorry for the inconvenience caused, but we will need the amount of £2,134.39 to be repaid by your pension provider. Under these circumstances, HMRC allow the repayment of a contribution made as a result of software or administration error and there is no tax liability resulting from this. Furthermore, if you have derived a benefit from the overpayment, in the form of investment return, you are able to keep that in your fund.

I attach a breakdown of all the payments made to Investor SIPP Trustees Limited and the deductions from income resulting from your employment. The payments total £20,472.66 and the deductions total £18,338.27 (the difference of £2,134.39 is the overpayment).

Please could you forward this letter to your account manager at Investor SIPP Trustees Limited so we can begin the process to put in place the repayment.

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    I’m voting to close this question because it requires a professional legal advice
    – mustaccio
    Commented May 20 at 14:51
  • @mustaccio I don't disagree, but I have seen questions like this being responded and well received.
    – Or4ng3h4t
    Commented May 20 at 15:07
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    If you were overpaid then you theoretically must repay that overpayment, but any interest you earned, would still be yours. The letter says as much. I don’t see why you feel slighted to be honest
    – Donald
    Commented May 20 at 18:35
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    I cast the finally vote to close - at face value, it seems like an honest mistake and they have pointed you to the resolution. However, this is very much a legal issue - you linked to another question - which was also closed for the same reason. We wish you the best of luck - but things like Pension Law are too niche and nuanced for us to assist with.
    – TheDemonLord
    Commented May 20 at 19:53
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    @Marlon, Before repaying anything or agreeing to the debt, which would reset the clock, do verify the statute of limitations in your jurisdiction for payroll mistakes.
    – Stephan Branczyk
    Commented May 22 at 20:05

1 Answer 1

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Top level is that if you were not supposed to get this money, you will have to return it. This has nothing to do with ethics either, it's same as if employer were to overpay you by accident - the money has to be repaid, if not it can/will be garnished from future wages instead, up for the involved parties to figure out what's best.

This is very similar, but you were overpaid through the contribution. You should speak with them, and figure how would you like to repay the money, can be some installments via cash, or speak with your pension and get them to rectify it directly. Quite sure they will be happy with either. In either case this was interest free money you got some benefit out of in your pension account.

I personally would recommend settling with repayments and cash as that's a lot less complicated than getting pensions involved, and they likely will be open to some very long payment plans as... well, going through courts for small sums is hardly worth it, especially when a voluntary settlement is easily available. But if you want to go through pension instead, mind that you won't be able to top it up this year by that amount (assuming that you are maxing your tax-free contributions already) as this won't affect this years limit. I guess you could ask for something for that if you really want to try to keep a hundred for your trouble or something like that.

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    "Top level is that if you were not supposed to get this money, you will have to return it." - but it's also their job to make the payroll calculations and determine the exact figures of what the OP was "supposed to get". Given the lapse of time, and if the OP was not aware of the mistake at the time of payment, then I'd be inclined to deny their request for repayment. You can't have companies thinking they can come back months or years later to argue about how they calculated your pay, when you're likely to have completely forgotten contemporary circumstances and discarded paperwork.
    – Steve
    Commented May 21 at 6:34
  • @Steve great, make your own answer then instead of commuting it in.
    – Aida Paul
    Commented May 21 at 7:17
  • I can't make an answer - the question is closed. Moreover I'm addressing the specific points of your answer. The employer is responsible for payroll calculations (and applying the complicated legal regimes associated), not the employee, and they've advised him that he was "supposed to get" a certain level of pension contribution. You wouldn't accept a lawyer saying "you know that final settlement I advised you on 18 months ago? I'm afraid you're actually liable for another £2k because it wasn't supposed to be what I told you it was". Why would you accept an employer saying so?
    – Steve
    Commented May 21 at 7:29
  • Because of the law. Also, yes, you would have to accept that from a lawyer if the fineprint is good - otherwise there would be a liability insurance case against the lawyer. Miscalculations happen and errors generally are corrected.
    – TomTom
    Commented May 22 at 14:02
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    @MarkRotteveel that only applies if you are going over contributions, judging by the sums OP says, I don't think they are anywhere near those (and if they were, that would've been billed 2 years ago when overpayment happened, or at worst last year when year end taxes are done).
    – Aida Paul
    Commented May 23 at 10:34

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