The Inland Revenue was today reviewing its internal procedures after a computer error led to it wrongly paying out more than £80m to thousands of pension scheme members.

Up to 175,000 customers are now facing the prospect of being ordered to pay back the cash, which has accumulated in their accounts over the last four years.

The Inland Revenue apologised for the error and last night said it was deep in negotiations with the Association of British Insurers to work out a solution which "may result in financial loss, either for the customer or for the insurer".

The mistake arose after the Inland Revenue's computer system failed to register that a number of companies were submitting duplicate annual returns, thus "triggering duplicate payments of rebates".

New checks have now been put in place to prevent the same from happening again and the Inland Revenue is also looking at the possibility of "financial redress" to those customers affected by the mistake.

"We are currently in the process of letting all the individuals affected know what has happened," said an Inland Revenue spokeswoman who emphasised the importance of "softening the blow" by informing customers of the progress of the investigation.

"The main thing is that we deal with the association related to the pensions funds first. The next process will then take its course."

But she claimed that the money involved - "in the region of £82 million" - when considered in its true context, was a "small drop in the ocean" and that the number of people affected was relatively small.

In a statement the ABI said: "We are currently working with the Inland Revenue to protect both members and customers from any losses that may result from the Revenue recovering duplicate payments of contracted out rebates. "Due to stock market performance the recovery of the overpaid amount may result in a financial loss, either for the customer or for the insurer.

"We are currently establishing the how many people have been affected and what the losses are likely to be. We will then broker a solution."

And in a letter to Mary Francis, director general of the ABI, Bridget Woodley, the head of the task force assigned the job of investigating the error, said procedures were currently in the process of being altered.

She wrote: "We are committed to making sure that individuals do not lose out as a result of this problem and we want to continue to work with you to resolve this as quickly as possible.

"The majority of the over-payments arose as a result of employers submitting their annual returns to us more than once, which triggered duplicate payments of rebates.

"We do have a legal obligation to recover the over-payments but we also have the ability to make good losses which are incurred as a result of departmental error or unreasonable delay."

She said that the amount that could be made good would depend on the details of each case.

"I would also like to say that we don't normally pay compensation to schemes administrators for the cost of dealing with error or delay but I can confirm that given the unusual circumstances of this case we will give serious consideration to this." Guardian

-- Anonymous, November 08, 2002