Nicked my pension?
Discussion
Guess I'm hoping some employment lawyers might have an opinion on this (sorry for length):
In my previous job I had a non-contributory final salary pension. At the end of each year, I got a statement totting up my salary and other benefits, including 15% of my gross salary as "pension contributions" made on my behalf. Needless to say, the pension was a major selling point for the company, and I would certainly not have taken the (otherwise poorly paid) job without it. The pack I received when I joined said that I'd have to stay 2 years in order to get a deferred pension (i.e. leave the money where it is). Otherwise I'd have to transfer it to another scheme.
When I was thinking about resigning (all very amicable), I talked to HR about what would happen to my pension as I had worked there < 2 years. My new employer were happy to wait for the extra 2 months (it would only have been equivalent to a 3 month notice period anyway, standard for the industry), so I planned to do just that, but in any case a transfer didn't sound so bad. However, HR told me that the rules had changed and that I would be entitled to a deferred pension as I had been there for over 3 months. This was said in person.
So I leave at 1 year 10 months service. I get a letter from the pension administration company/trustees telling me that yes, I indeed was entitled to a deferred pension and enclosed a value statement along with a certificate of entitlement. Next thing I know, a few months down the line I get another letter telling me they made a mistake and because I was there < 2 years I must transfer to another scheme. They asked me to return the certificate. Turns out both HR and the pension administrators had made the same mistake (what a coincidence) and the rules of the scheme dictated I had to transfer.
Normally one would transfer such a pension into one's current occupational scheme, but mine doesn't accept transfers (I work for a European entity not governed by UK law). "A minor annoyance" I thought, until I looked at the transfer value. This was substantially less than the "contributions" made on my behalf (as in, a third of the value). Apparently, the contributions mean nothing at all because in a final salary scheme the value of the pension is based on the liability to provide a pension (i.e. "how much cash is needed to provide the pension") rather than having an absolute share of a fund. In addition, they calculated my length of service as only 1 year 9 months because I didn't work every day in the final month (ignoring the fact I worked every working day!) It was also proving very hard to find a scheme I could transfer such a low value to given that I couldn't transfer to my occupational scheme.
I wrote the administrators a letter with all of my concerns. A lot of faffing around went on during which I asked to remain in the scheme, and eventually it turned out the trustees could allow it "at their discretion". Since in theory the scheme does not lose out financially, there should be no particular reason to deny, so I went through the process to ask them to do this on the grounds of exceptional circumstances. The request was rejected without explanation.
Resigned to transferring, my FA eventually found a scheme and instructed the administrators to transfer the value. The administrators do another calculation (about 14 months later), and low and behold the value has shrunk to less than a half in the meantime. I'm incredulous, and the FA now needs to find yet another scheme to accept the lower value fund.
Now, my questions:
1. Did my previous employer give me "bad advice", leaving them with some responsibility?
2. Did my previous employer give me misleading information about my remuneration?
3. If the transfer value is supposed to reflect the cost of providing a defined benefit rather than a share of the fund, how can it decrease so much?
It's not a huge amount of money (now less than a thousand), but I hate to feel robbed so am unwilling to give in. Any advice?
In my previous job I had a non-contributory final salary pension. At the end of each year, I got a statement totting up my salary and other benefits, including 15% of my gross salary as "pension contributions" made on my behalf. Needless to say, the pension was a major selling point for the company, and I would certainly not have taken the (otherwise poorly paid) job without it. The pack I received when I joined said that I'd have to stay 2 years in order to get a deferred pension (i.e. leave the money where it is). Otherwise I'd have to transfer it to another scheme.
When I was thinking about resigning (all very amicable), I talked to HR about what would happen to my pension as I had worked there < 2 years. My new employer were happy to wait for the extra 2 months (it would only have been equivalent to a 3 month notice period anyway, standard for the industry), so I planned to do just that, but in any case a transfer didn't sound so bad. However, HR told me that the rules had changed and that I would be entitled to a deferred pension as I had been there for over 3 months. This was said in person.
So I leave at 1 year 10 months service. I get a letter from the pension administration company/trustees telling me that yes, I indeed was entitled to a deferred pension and enclosed a value statement along with a certificate of entitlement. Next thing I know, a few months down the line I get another letter telling me they made a mistake and because I was there < 2 years I must transfer to another scheme. They asked me to return the certificate. Turns out both HR and the pension administrators had made the same mistake (what a coincidence) and the rules of the scheme dictated I had to transfer.
Normally one would transfer such a pension into one's current occupational scheme, but mine doesn't accept transfers (I work for a European entity not governed by UK law). "A minor annoyance" I thought, until I looked at the transfer value. This was substantially less than the "contributions" made on my behalf (as in, a third of the value). Apparently, the contributions mean nothing at all because in a final salary scheme the value of the pension is based on the liability to provide a pension (i.e. "how much cash is needed to provide the pension") rather than having an absolute share of a fund. In addition, they calculated my length of service as only 1 year 9 months because I didn't work every day in the final month (ignoring the fact I worked every working day!) It was also proving very hard to find a scheme I could transfer such a low value to given that I couldn't transfer to my occupational scheme.
I wrote the administrators a letter with all of my concerns. A lot of faffing around went on during which I asked to remain in the scheme, and eventually it turned out the trustees could allow it "at their discretion". Since in theory the scheme does not lose out financially, there should be no particular reason to deny, so I went through the process to ask them to do this on the grounds of exceptional circumstances. The request was rejected without explanation.
Resigned to transferring, my FA eventually found a scheme and instructed the administrators to transfer the value. The administrators do another calculation (about 14 months later), and low and behold the value has shrunk to less than a half in the meantime. I'm incredulous, and the FA now needs to find yet another scheme to accept the lower value fund.
Now, my questions:
1. Did my previous employer give me "bad advice", leaving them with some responsibility?
2. Did my previous employer give me misleading information about my remuneration?
3. If the transfer value is supposed to reflect the cost of providing a defined benefit rather than a share of the fund, how can it decrease so much?
It's not a huge amount of money (now less than a thousand), but I hate to feel robbed so am unwilling to give in. Any advice?
I'm not an expert on this but I think they did make a mistake but the responsibility is moral rather than legal.
Pensions are IMHO a poor way of saving for retirement. Yes there are tax advantages, but there is such a lack of control and you are so open to the whims of scheme administrators and changes in the law that you can easily get shafted down the line.
Pensions are IMHO a poor way of saving for retirement. Yes there are tax advantages, but there is such a lack of control and you are so open to the whims of scheme administrators and changes in the law that you can easily get shafted down the line.
It is my understanding that the law changed in the last few years with regard to how pensions are treated if you have <2 years service. It used to be the case that you were automatically taken out of it and had contributions refunded (less a portion for tax).
The law changed and now says that you can opt to keep your money in the scheme if you have <2 years service. The scheme trust deed should have been updated to reflect this change in law.
Not too sure where you stand with transfers out if you have a non-contributory scheme though, as I have only ever run contributory final salary schemes.
Lodge a complaint straight away. There is a dispute resolution procedure in place in pension schemes which you should activate. I would then ask for a copy of the relevant section of the Trust Deed that covers this issue, and any subsequent deeds of amendment. This will let you know what your scheme rules actually are. Once you have this information and have lodged a complaint, I would get some legal advice.
The law changed and now says that you can opt to keep your money in the scheme if you have <2 years service. The scheme trust deed should have been updated to reflect this change in law.
Not too sure where you stand with transfers out if you have a non-contributory scheme though, as I have only ever run contributory final salary schemes.
Lodge a complaint straight away. There is a dispute resolution procedure in place in pension schemes which you should activate. I would then ask for a copy of the relevant section of the Trust Deed that covers this issue, and any subsequent deeds of amendment. This will let you know what your scheme rules actually are. Once you have this information and have lodged a complaint, I would get some legal advice.
Edited by Firefoot on Wednesday 13th May 09:25
Thanks for your input guys.
As for the change in the law, after many discussions with the administrators I'm under the impression that before the change in the law a couple of years ago, if you left the scheme with < 2 years, you got nothing back at all. The change meant that you get nothing back only if working there for < 3 months; with between 3 months and 2 years' service you can transfer the value out. After 2 years you can stay in the scheme. Obviously if you made contributions (which were optional) you get those back.
Unfortunately HR thought the same as you and told me I could stay in the scheme, but I know that the trust rules state you are only entitled to a transfer - they were changed as a result of a change in the law, as I understand.
I think the problem I have is that although I can lodge a complaint (there is an ombudsman of sorts I believe) technically the administrators/trustees have done nothing wrong in denying me the right to a deferred pension - rather the mistake was HR telling me I could keep it which affected my decision to resign. I'm not sure if this is a moral or legal issue. Likewise the statement of benefits was very misleading - lots of people who still work there think their pension is worth a lot more than it really is because of these. I'm also not sure if I have a case with the administrators about the decreasing value - can anyone tell me if that is normal for a defined benefits scheme?
As for the change in the law, after many discussions with the administrators I'm under the impression that before the change in the law a couple of years ago, if you left the scheme with < 2 years, you got nothing back at all. The change meant that you get nothing back only if working there for < 3 months; with between 3 months and 2 years' service you can transfer the value out. After 2 years you can stay in the scheme. Obviously if you made contributions (which were optional) you get those back.
Unfortunately HR thought the same as you and told me I could stay in the scheme, but I know that the trust rules state you are only entitled to a transfer - they were changed as a result of a change in the law, as I understand.
I think the problem I have is that although I can lodge a complaint (there is an ombudsman of sorts I believe) technically the administrators/trustees have done nothing wrong in denying me the right to a deferred pension - rather the mistake was HR telling me I could keep it which affected my decision to resign. I'm not sure if this is a moral or legal issue. Likewise the statement of benefits was very misleading - lots of people who still work there think their pension is worth a lot more than it really is because of these. I'm also not sure if I have a case with the administrators about the decreasing value - can anyone tell me if that is normal for a defined benefits scheme?
With regards to value, if one of my scheme members was to leave with less than 2 years service, then I have to provide the pension administrators with a record of the contributions the employee has made. They then deduct an amount for tax and tell me how much to refund the employee.
If an employee wants to leave and transfer to another scheme, then the calculation becomes more complicated. Because our scheme is in deficit, they will not get the full value of what they have put in, but rather an equivalent amount of what it is actually worth in todays market based on the last valuation. Then we deduct an administration fee. So you would never get the full amount back off our scheme for a transfer out.
However, I do not know the mechanics of a scheme where there is no requirement for the employee to contribute. It seems as though they are assigning a nominal value to your fund rather than go by how much has actually been accrued in the scheme for you.
I would say get yourself along to a solicitor offering first hour free advise to get an idea of whether you have a case against the employer for a finiancial loss and an idea of what chance you stand of getting anything from this. I would still put in a complaint, however, as your complaint is with the employer really then the ombudsman may not get involved, you would have to go directly to the employer. Again, a solicitor can advise you for certain.
If an employee wants to leave and transfer to another scheme, then the calculation becomes more complicated. Because our scheme is in deficit, they will not get the full value of what they have put in, but rather an equivalent amount of what it is actually worth in todays market based on the last valuation. Then we deduct an administration fee. So you would never get the full amount back off our scheme for a transfer out.
However, I do not know the mechanics of a scheme where there is no requirement for the employee to contribute. It seems as though they are assigning a nominal value to your fund rather than go by how much has actually been accrued in the scheme for you.
I would say get yourself along to a solicitor offering first hour free advise to get an idea of whether you have a case against the employer for a finiancial loss and an idea of what chance you stand of getting anything from this. I would still put in a complaint, however, as your complaint is with the employer really then the ombudsman may not get involved, you would have to go directly to the employer. Again, a solicitor can advise you for certain.
Edited by Firefoot on Wednesday 13th May 16:13
OK thanks. I think for a defined benefits scheme it is certainly different - the contributory portion of my pension worked exactly as you describe (i.e. similar to "defined contribution"), but I was specifically told by the administrators (rather condescendingly, I might add) that the contributions made by my employer were NOT allocated directly to me in any way - the level of contribution the employer makes to the fund is dependent on what is required over time to pay out the defined benefits to all the members. So, they told me this means that the value of "my" pension entitlement is equivalent to what I would need to invest myself in order to provide an equivalent benefit, rather than a slice of the fund. Now maybe they have done a U-turn?
With regards to getting a lawyer, I fear this is a bit pointless as they told me about all this in person not in writing. Those statements were pretty misleading though - if they tell me my pension is "worth" X quid and in reality it's worth much less, there's gotta be something in that. Worth a try.
I might see if I can ask the trustees again, this time in person. Bring a couple of heavies along
With regards to getting a lawyer, I fear this is a bit pointless as they told me about all this in person not in writing. Those statements were pretty misleading though - if they tell me my pension is "worth" X quid and in reality it's worth much less, there's gotta be something in that. Worth a try.
I might see if I can ask the trustees again, this time in person. Bring a couple of heavies along
Gassing Station | Jobs & Employment Matters | Top of Page | What's New | My Stuff