My pension transfer in 2006 was £38k short, but I’m only offered £5k now: Steve Webb replies
Brief? My pension transfer has been significantly undervalued, so why am I being offered so little?
Last summer, I was contacted by a pension administration company acting on behalf of a major pensions provider.
When my occupational pension was transferred from this provider to another in 2006, there was £38,000 underpayment from the new pension.
This underpayment was determined following a Supreme Court ruling regarding inequality in the guaranteed minimum pension.
I was offered around £5,000 (1% interest) to be paid in cash (taxable) or into a pension scheme.
The pensions manager has bombarded me with emails and letters to accept the money on offer.
I have filed a complaint with them regarding this high pressure tactic.
I am not happy with the amount offered. I feel that 17 years of investing in a managed pension scheme would have yielded much more than the amount on offer.
This is important to me as I am now 60 and looking forward to a pension.
I raised the matter with the management company but they said they were merely managing agents and had no capacity to act in relation to my complaint.
They raised the matter with the trustees of my previous pension provider, but the trustees never contacted me in relation to this matter.
Can you provide any guidance on how to escalate this issue and get a resolution?
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Steve Webb answers: When you transferred from your old pension scheme, the amount you were offered as a transfer value reflected the cost of saving the pension you were entitled to under the rules of that scheme.
Many years later, the court ruling means that had you remained in the scheme you would have received a larger pension than expected at the time.
The question is what compensation you should get now.
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Why are you being offered £5,000 to transfer an old pension?
The court ruling we are talking about relates to traditional salary-linked (defined benefit) pension systems.
Most schemes of this type have a deal with the government known as “outsourcing”.
In exchange for the employer and employee paying a reduced (‘contracted’) proportion of National Insurance contributions, the scheme had to promise to pay a pension on retirement broadly of the same quality as the State Earning-Related Pension Scheme (SERPS) was to offer.
This payment was known as the Guaranteed Minimum Pension and these rules applied between 1978 and 1997.
One of the strange things about the GMP is that the duty to pay it only ceased at the state retirement age which was different for men and women.
This could lead to the occupational pension system paying different amounts to different workers based solely on their gender.
In 1990, a court ruling ruled that the schemes must pay the same amount to men and women. Since then, there has been a lot of disagreement in the annuities world about whether this applies to GMP.
However, a series of relatively recent court cases have confirmed that pension schemes *must* offset the effects of GMPs, to ensure that people are not favored by their occupational pension scheme simply because they are male or female.
Both men and women lost depending on the circumstances. In many cases, the adjustments required are very small, but in some cases – like yours – they can be very large.
And a November 2020 court ruling It specifically ruled that the values of previous pension transfers also need to be reviewed to verify the effects of this ruling.
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How does this affect your show now?
From what you’ve told me, it seems plausible that if your first pension scheme had 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 money had gone into your destination’s pension scheme in 2006, it would have now made a lot more than the £5,000 or so you were offered, and that’s almost true.
I have looked at the court’s judgment and I can see (at paragraph 263) that the judge in the case took precisely this point into account.
In principle, the judge accepted that to put you in exactly the same position as if the then current rules had applied, it would be necessary to identify the return you had missed.
But determining this for each individual, taking into account the investment strategy of each destination scheme, would be a huge and complex task, the judge said.
As I mentioned earlier, many of these payments in connection with the GMP settlement are very small, and the judge said that in some cases paying an expert to do all the calculations could cost more than the size of the compensation payment.
He therefore decided that a rough and ready method was needed, and ordered that the interest from the time of conversion should be based on the base rate of the Bank of England plus 1 per cent.
He said this approach was “well used and well understood” and would provide “administrative simplicity”.
Since the judge has directed how this process should work, unfortunately I don’t think there is any clear way you can appeal this.
Although I am concerned that you may feel that you are being pressured by the scheme administrators, as long as they have done the calculations correctly, they appear to be acting in line with the court ruling in this case.
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