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?
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.
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.
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.
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?
Talk to the administrators/trustees and remind them that this is their mistake, and that neither of their suggested solutions are acceptable to you. They screwed up, so they should be prepared to shoulder the expense of asking the actuaries to work out how many years' service you've actually bought, and credit you with that. Simples!
Sorry, we crossed there!
Allow that to run its course, and if you're still not satisfied then go to the Pensions Ombudsman.
ETA: For the avoidance of doubt, the Pensions Regulator is not the body you want, because they don't get involved in individual cases.
Rubin215 said:
Is there any big stick I can wave at them?
The first step is to invoke the pension scheme's formal complaints procedure.Allow that to run its course, and if you're still not satisfied then go to the Pensions Ombudsman.
ETA: For the avoidance of doubt, the Pensions Regulator is not the body you want, because they don't get involved in individual cases.
Edited by Dr Mike Oxgreen on Friday 24th January 12:28
Rubin215 said:
I would have thought so too, however they are only willing to discuss the two options put forward so far.
Is there any big stick I can wave at them?
I agree.Is there any big stick I can wave at them?
You have obviously been paying some AVCs so the scheme must have thought you were buying SOMETHING, not nothing, and you are entitled to that something.
How long has this been going on? To get behind by £28k it must be quite a while or you must be pretty well paid, or both. Buying an additional 20 years sounds extraordinary to me - that must be virtually half a normal working life.
I strongly recommend that you raise this as a formal complaint using the scheme's Internal Disputes Resolution Procedure (IDRP). All schemes must by law have an IDRP. Usually it's described in the scheme booklet/pamphlet, or whatever material is used to publicise the scheme.
The IDRP is several parts:
1. Stage 1: you write to the party indicated in the IDRP setting out your complaint and how you want it to be resolved. The party then investigates and decided whether or not you have a complaint and advises you accordingly. If the party agrees, there will also be set out how the complaint should be resolved.
2. Assuming the party decides that you do not have a complaint, you can take matters to stage 2 of the IDRP. Usually, this means you writing to the trustees setting out why you disagree with the stage 1 decision etc. The trustees must then investigate, make a decision and advise you accordingly.
3. If at the end of stages 1 & 2 of the IDRP you are not content, you can ask The Pensions Advisory Service (TPAS) to investigate your complaint. Assuming TPAS take on your complaint their aim will be to seek a solution acceptable to all parties, not always achievable.
4. If TPAS cannot bring about an acceptable solution you can ask the office of the Pensions Ombudsman (PO) to investigate your complaint. Assuming he takes on your case the PO will investigate matters and make what is called a Determination. The Determination has the force of law and must be accepted by all the parties. The Determination will set out the reasons for the PO's decision, the action that must be taken, and who must take it. It is exceedingly rare for a Determination to be contested and this can only be done through the Courts.
Points to note:
a. You can always go to TPAS for advice and assistance at any stage of the IDRP: you can do so before starting stage 1 if you wish and TPAS will help you through the entire procedure.
b. There is no point starting by raising your complaint with the PO (contrary to the advice above). The PO will not normally take on a case unless it has been through stages 1 & 2 of the IDRP and has been investigated by TPAS, although you can ask the PO to investigate things at the end of stage 2. In this event the PO will often insist that you get TPAS to carry out investigations before he, the PO, takes on the case.
c. TPAS services are entirely free. It is, in effect, a quango financed by the Department of Pensions by a levy on all pension schemes. Aside from a modest sized head office staff, case work is done by close to 500 pension professionals who give their time free. TPAS do not take sides: they form a view and seek resolution of complaints by negotiation etc.
d. You can get more information here: www.pensionsadvisoryservice.org.uk. You could give them a call and have a chat about your problem. They will probably ask you to detail matters via e-mail and then assign your case to a TPAS adviser who will assist you in dealing with your complaint on a formal basis.
Good luck!
R
The IDRP is several parts:
1. Stage 1: you write to the party indicated in the IDRP setting out your complaint and how you want it to be resolved. The party then investigates and decided whether or not you have a complaint and advises you accordingly. If the party agrees, there will also be set out how the complaint should be resolved.
2. Assuming the party decides that you do not have a complaint, you can take matters to stage 2 of the IDRP. Usually, this means you writing to the trustees setting out why you disagree with the stage 1 decision etc. The trustees must then investigate, make a decision and advise you accordingly.
3. If at the end of stages 1 & 2 of the IDRP you are not content, you can ask The Pensions Advisory Service (TPAS) to investigate your complaint. Assuming TPAS take on your complaint their aim will be to seek a solution acceptable to all parties, not always achievable.
4. If TPAS cannot bring about an acceptable solution you can ask the office of the Pensions Ombudsman (PO) to investigate your complaint. Assuming he takes on your case the PO will investigate matters and make what is called a Determination. The Determination has the force of law and must be accepted by all the parties. The Determination will set out the reasons for the PO's decision, the action that must be taken, and who must take it. It is exceedingly rare for a Determination to be contested and this can only be done through the Courts.
Points to note:
a. You can always go to TPAS for advice and assistance at any stage of the IDRP: you can do so before starting stage 1 if you wish and TPAS will help you through the entire procedure.
b. There is no point starting by raising your complaint with the PO (contrary to the advice above). The PO will not normally take on a case unless it has been through stages 1 & 2 of the IDRP and has been investigated by TPAS, although you can ask the PO to investigate things at the end of stage 2. In this event the PO will often insist that you get TPAS to carry out investigations before he, the PO, takes on the case.
c. TPAS services are entirely free. It is, in effect, a quango financed by the Department of Pensions by a levy on all pension schemes. Aside from a modest sized head office staff, case work is done by close to 500 pension professionals who give their time free. TPAS do not take sides: they form a view and seek resolution of complaints by negotiation etc.
d. You can get more information here: www.pensionsadvisoryservice.org.uk. You could give them a call and have a chat about your problem. They will probably ask you to detail matters via e-mail and then assign your case to a TPAS adviser who will assist you in dealing with your complaint on a formal basis.
Good luck!
R
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