Systems Glitch Leads to U.K. Pension Overpayments

October 8, 2009 ( - U.K. insurer Aegon has admitted a systems glitch has been overvaluing by 25% the pensions of about 7,000 people who purchased the company's Retirement Control pension plans before 2002.

The Times newspaper said an Aegon “system error” never deducted from a participant’s account balance a tax-free lump sum.

According to the news account, the glitch involves the “income drawdown” feature of the Aegon accounts that allows pensioners up to 75 years old to get a tax-free distribution of 25% of their pension balance starting at age 50. Starting in 2000, participants who had taken the 25% distribution were being given a balance that still reflected the funds being in the account.

Because the withdrawn amount is calculated as a percentage of the pensioner’s total balance, Aegon said participants affected by the glitch were actually being overpaid, the newspaper said.

The company said it has no current plans to try to recoup any overpayment. However, Aegon said it will recalculate the correct payment amount based on 25% of the accurate balance and begin paying that amount instead.

“Once we have fully investigated this issue and identified how many customers are affected, we will provide a full detailed explanation to them and will ensure that our systems are corrected to reflect the true value of their funds,” an Aegon spokesman told the newspaper.    

Aegon said it was forced to take action because the affected accounts are linked to its unitized with-profits fund so customers taking a 25% distribution from overvalued accounts were getting more than their fair share of the fund’s assets, the Times reported.