Shortchanged? My pension transfer was undervalued by a large sum so why am I being offered so little back?
Last summer I was contacted by a pension administration firm acting on behalf of a large pension provider.
When my occupational pension was transferred from this provider to another one in 2006, there was an underpayment into the new pension of going on £38,000.
This underpayment has been identified following a High Court ruling with regards to unequal Guaranteed Minimum Pension.
I have been offered around £5,000 (1 per cent interest) to be paid in cash (subject to tax) or into a pension scheme.
The pension administrator has bombarded me with emails and letters to accept the money offered.
I have raised a complaint with them about this high pressure approach.
I am unhappy with the sum offered. I feel 17 years of investment in a managed pension scheme would have yielded much more than the sum offered.
This is important to me as I am now 60 and looking to take my pension.
I raised the matter with the administration firm but they say they are just the admin agents and have no power to act with regards to my complaint.
They have raised the matter with the trustees of my former pension provider, but the trustees have never contacted me with regards to this matter.
Can you offer any guidance on how I can escalate this matter and get a resolution?
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Steve Webb replies: When you transferred out of your old pension scheme, the amount you were offered as a transfer value reflected the cost of providing the pension you were entitled to under the rules of that scheme.
Many years later, a court ruling means that had you stayed in that scheme you would have received a bigger pension than was expected at the time.
The question is what redress you should receive now.
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Why are you being offered £5k on an old pension transfer?
The court ruling we are talking about relates to traditional salary-related (defined benefit) pension schemes.
Most schemes of this sort did a deal with the government known as ‘contracting out’.
In return for the employer and employee paying a reduced (‘contracted out’) rate of National Insurance contributions, the scheme had to promise to pay a pension at retirement broadly as good as the state earnings-related pension scheme (SERPS) would have provided.
This payment was known as a Guaranteed Minimum Pension and these rules applied between 1978 and 1997.
One of the odd things about the GMP is that the duty to pay it only cut in at state pension age which was different for men and women.
This could result in the occupational pension scheme paying different amounts to different workers based purely on their sex.
In 1990 a court judgment ruled that schemes must pay the same to men and women. Since then, there has been a lot of dispute in the pensions world about whether this applied to GMPs.
However, a series of relatively recent court cases have confirmed that pension schemes *do* have to equalise for the effects of GMPs, to make sure that people are not favoured by their occupational pension scheme just because they are male or female.
Both men and women have lost out depending on the circumstances. In many cases, the adjustments required are very small, but in some cases – such as yours – they can be quite substantial.
And a November 2020 court judgment specifically ruled that past pension transfer values also needed to be revisited to check for the effects of this ruling.
STEVE WEBB ANSWERS YOUR PENSION QUESTIONS
How does this affect your offer now?
From what you have told me, it seems to be accepted that had your first pension scheme known at the time that it would have to follow these rules it would have offered you around £38,000 extra on top of your transfer value.
But your point is that if that extra amount had gone into your destination pension scheme back in 2006, it would by now have generated a lot more than the payment of £5,000 or so that you have been offered, and that is almost certainly true.
I have looked at the court judgment and I can see (at paragraph 263) that the judge in the case did consider this exact point.
In principle, the judge accepted that, to put you in exactly the same position as you would have been if the current rules had been applied at the time, it would be necessary to work out the return you had missed out on.
But the judge said that working this out for each individual, taking account the investment strategy of each destination scheme, would be a huge and complex task.
As I mentioned earlier, many of these payments in respect of GMP equalisation are very small, and the judge said that in some cases it could cost more money to pay an expert to do all the calculations than the size of the redress payment.
He therefore decided that a rough-and-ready method was required, and he ordered that interest from when the transfer took place should be based on the Bank of England base rate plus 1 per cent.
He said that this approach was ‘well used and well understood’, and would provide ‘administrative simplicity’.
Given that the judge has directed how this process should work, unfortunately I don’t think that there is any obvious way in which you can challenge this.
Whilst I’m concerned that you feel you are being pressured by the administrators of the scheme, as long as they have done the calculations correctly, it would seem that they are acting in line with the court judgment in this case.
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