Pension AVC cock-up.
Discussion
In addition to my main employment, I work part-time in the public sector and have been a member of a defined benefit pension scheme since I first started (approx 5 years ago).
Not long after I joined, I approached the administrators of the scheme and asked about paying additional voluntary contributions; they advised it was possible and we agreed that I would make the maximum level of AVC possible (the job is one I enjoy so, while I probably wouldn't do it for free, the pay is not all that important and I have a reasonable standard of living from my main salary so didn't want to come to rely on the extra money; it made sense at the time to put the money away for the future).
I have now been paying this for over 4 years, deducted at source by my pay department, so imagine my surprise when I received a phone call telling me I was behind in contributions to over £28,000!!!
It would appear that, at the first stage, the whole thing was set up incorrectly and it has taken this long for someone in the admin dept to realise (despite them producing pension statements at the end of each year).
Going by the rules of the scheme, I have agreed to purchase an additional 20 years service, however this has to be calculated on the reference pay i.e. the pay of a full-time employee, even though I am only a part-time worker.
My pay department however, have only been paying the additional contributions (approx 33%) from my actual pay so, although I have already paid nearly £10k I am still waaaay behind.
The pension administrators have conceded (in writing) that the difference between reference pay and actual pay should have been more clearly explained to me, they recognise that I had no reason to know the difference and apologise for the lack of clarity in letters sent to both me and my pay department.
However, so far their proposed resolution to the situation is either:
1. Cancel the contract and return my AVC's to me (minus tax)
2. I pay the shortfall of contributions (open to negotiation over timescales etc).
Now obviously I am not in a position to make up the shortfall but, looking at a return of contributions, I wonder about a few things.
Firstly, had I not been putting the money into a pension scheme I would have invested it elsewhere: should the administrators be making a contribution to my loss of interest?
Next, although the scheme is non-invested (i.e. the money paid in by employees isn't actually invested anywhere, it goes straight back out to existing pensioners or back into the organisation's budget) there is an element of employer's contribution in what is paid out; I will lose the benefit of this in the long term so should an additional sum be added for this?
Finally, is there anything else I have missed out on that could come back and bite me later?
Not long after I joined, I approached the administrators of the scheme and asked about paying additional voluntary contributions; they advised it was possible and we agreed that I would make the maximum level of AVC possible (the job is one I enjoy so, while I probably wouldn't do it for free, the pay is not all that important and I have a reasonable standard of living from my main salary so didn't want to come to rely on the extra money; it made sense at the time to put the money away for the future).
I have now been paying this for over 4 years, deducted at source by my pay department, so imagine my surprise when I received a phone call telling me I was behind in contributions to over £28,000!!!
It would appear that, at the first stage, the whole thing was set up incorrectly and it has taken this long for someone in the admin dept to realise (despite them producing pension statements at the end of each year).
Going by the rules of the scheme, I have agreed to purchase an additional 20 years service, however this has to be calculated on the reference pay i.e. the pay of a full-time employee, even though I am only a part-time worker.
My pay department however, have only been paying the additional contributions (approx 33%) from my actual pay so, although I have already paid nearly £10k I am still waaaay behind.
The pension administrators have conceded (in writing) that the difference between reference pay and actual pay should have been more clearly explained to me, they recognise that I had no reason to know the difference and apologise for the lack of clarity in letters sent to both me and my pay department.
However, so far their proposed resolution to the situation is either:
1. Cancel the contract and return my AVC's to me (minus tax)
2. I pay the shortfall of contributions (open to negotiation over timescales etc).
Now obviously I am not in a position to make up the shortfall but, looking at a return of contributions, I wonder about a few things.
Firstly, had I not been putting the money into a pension scheme I would have invested it elsewhere: should the administrators be making a contribution to my loss of interest?
Next, although the scheme is non-invested (i.e. the money paid in by employees isn't actually invested anywhere, it goes straight back out to existing pensioners or back into the organisation's budget) there is an element of employer's contribution in what is paid out; I will lose the benefit of this in the long term so should an additional sum be added for this?
Finally, is there anything else I have missed out on that could come back and bite me later?
FiF said:
First thought. I would be surprised if there were any additional employer's contributions to an AVC scheme however it is set up.
Secondly wouldn't contributions at the rate they appear to have been expecting put you over the HMRC limits at the timerregarding the % of your income that you were putting into a pension.
Thirdly this seems to come under the category of a clerical error. Common sense should suggest that they put you into a position that the pair of you thought you were getting into, ie working towards 20 years service at your actual salary not an irrelevant hypothetical salary.
This may mean getting some sort of actuarial calculation based on the actual "fund" amount and start you again on the right path at that calculated point. Of course due to the way public sector pensions are paid there is no fund. Silly me.
I don't think there is any additional employer's contribution added specifically to AVC's; currently the employer's contribution to the scheme as a whole is calculated as 14.2%.Secondly wouldn't contributions at the rate they appear to have been expecting put you over the HMRC limits at the timerregarding the % of your income that you were putting into a pension.
Thirdly this seems to come under the category of a clerical error. Common sense should suggest that they put you into a position that the pair of you thought you were getting into, ie working towards 20 years service at your actual salary not an irrelevant hypothetical salary.
This may mean getting some sort of actuarial calculation based on the actual "fund" amount and start you again on the right path at that calculated point. Of course due to the way public sector pensions are paid there is no fund. Silly me.
The pension is calculated on a 60ths basis i.e. each complete year of service buys 1/60th of a year's final salary up to a maximum of 40 years service or 40/60ths.
I pay a set percentage each pay and at the end of the year the amount I have paid in is calculated as a percentage of a full-time employees contributions and this purchases a period of service. As a rough guide, four years part-time service buys one year of full time service.
The AVC's were intended to buy more service so that I would receive a reasonable pension at retiral.
I'm not sure how the expected contributions relate to HMRC limits; certainly the expected contribution should have been just over £9k per year - my gross pay for this employment averages £6-7k.
My main employment is with the same employer but under a different contract (although both employments are on the same payslip) and I have a separate pension under a different scheme with my main job (which I hope is up to date...); I'm not sure if that matters?
I fully understand that this has just been an error but, so far, I seem to be the one who will lose out on this through no fault of my own.
Dr Mike Oxgreen said:
Rubin215 said:
However, so far their proposed resolution to the situation is either:
1. Cancel the contract and return my AVC's to me (minus tax)
2. I pay the shortfall of contributions (open to negotiation over timescales etc).
Surely there's a third perfectly reasonable solution: the administrators/trustees could ask the actuaries to calculate how many extra years' service you have actually bought with the contributions you've made, and they credit you with those additional years' service?1. Cancel the contract and return my AVC's to me (minus tax)
2. I pay the shortfall of contributions (open to negotiation over timescales etc).
As a trustee of my company's defined benefit scheme, this seems a blindingly obvious compromise to me.
Is there any big stick I can wave at them?
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