Row erupts over £140m pension error

The Government was embroiled in a blame game over pensions blunders that meant thousands of retired public sector workers were overpaid by up to £140 million.

One of the firms responsible for administering the payments reacted angrily after Work and Pensions Secretary James Purnell hinted that its contract could be in jeopardy.

Asked on the BBC what would happen to Xafinity Paymaster after errors led to more than 100,000 ex-state workers - including military personnel, NHS staff, police and firemen - being overpaid, Mr Purnell replied: "Clearly that is something the Government will be looking at."

However, the company hit back by laying the blame squarely at the door of the Government. A statement insisted it was "not at fault" and "not responsible" for the overpayments, which arose because a pension element known as the Guaranteed Minimum Pension (GMP) was not properly recorded.

"A number of public sector pension scheme administrators, including Xafinity Paymaster, were not notified of the correct GMP data," the firm said. "The result is that some public sector pensions have been overpaid."

Opposition politicians accused ministers of condemning the public sector workers to a Christmas of "uncertainty and fear" after the scale of the problems emerged. In a statement to MPs, Cabinet Secretary Liam Byrne insisted that the Government would not seek to recoup the cash - but individuals do face having their pensions slashed in April.

"Correct pension payments will be ordered immediately from April 2009," he said. "This means that some pensioners will have their payments reduced and others will see increases in their payments in 2009 which are less than the annual inflation uprating."

Shadow treasury secretary Philip Hammond said it was unacceptable that most of the individuals - some 5% of the total UK public sector pensioners - would not known what their new income would be until next year.

"It is completely unacceptable for the Government just to tell pensioners they have been affected but refuse to give them the full facts until January," he said. "(They) now face a Christmas of uncertainty and fear, wondering what is going to happen to their pensions."

There are fears that many of the pensioners could be left struggling to make ends meet, with sharp cuts in interest rates and share values having already reduced their income from savings.