Pension Illustration Error?

Bodovlov

Hi pensions experts,

I have a Defined Benefits pension - I won't say at this stage who the employer or the who the Pension administrator is. Upon retirement I have been planning on taking the 25% tax free lump sum and reduced annual pension.

The pension administrators system has an illustrator that provides an estimate based on the retirement date that you enter, I have been using this for several years and (based on a 1st Dec 2024 retirement date) the illustration has only ever varied very slightly, usually up or down by just a few hundred quid.

As I am now just a few months away from retirement I asked for a formal written illustration based on the 01/12/24 retirement date and this arrived in the post this week, I was shocked to see that both the tax fee lump sum and the reduced pension amounts are around 25% lower than all previous (and current) online illustrations.

I know, of course, that the online illustration is just an estimate and that the value of your pension can go up or down based on fund performance etc. etc. however, as I say above, the estimate has changed very little over the last few years so I am quite stunned by the variance.

I have raised this with the pension administrator and they are currently carrying out an investigation and have advised this will take around 10 days. Whilst I was on the phone they ran the same illustration and got the same estimate as me so they could not explain why the formal written illustration is so much lower.

Here's where I get worried...

The pension administrator has now removed my access to the online illustrator so I suspect the result of the investigation will be that there was a "bug" in the illustrator and it has been giving false estimates for years. I did take screenshots of the last online illustration before they took it down as evidence.

My question is; can I (or the ombudsman) hold the pension administrator accountable for a faulty system that has been grossly over-exaggerating my pension illustration? I believe this would fall under the heading of "pension mismanagement".

Basically I have been planning to pay off my mortgage later this year with the tax free lump sum and now this will fall significantly short. Can I claim compensation?

Appreciate any guidance.
Thanks.

NoMore

I guarantee their will be some small print with the online illustrator that says something like:

The projections on the next page are provided solely for the purpose of illustration. The projections are based on an understanding of the rules of the Scheme at the date of the projection and taking into account the current position adopted by HM Revenue & Customs. They do not represent any promise or guarantee as to the amount of benefit you may actually receive, and confer no right or entitlement to the benefits quoted.

(This is from my DB pension website).

xylophone

I know, of course, that the online illustration is just an estimate and that the value of your pension can go up or down based on fund performance 

A DB pension does not work like this.

Of course the Scheme will have investments but these have no direct connection with  your  DB pension which is  a promise to pay a certain amount based on your  salary/accrual/years of service.

I believe this would fall under the heading of "pension mismanagement".

No, it wouldn't.

The pension scheme has not been mismanaged.

There may be a glitch in the estimator - it does seem rather odd though that it would crop up for just one person..

 It seems to me that at the very most you might have a case for loss of expectation but given that there is (presumably) no guarantee 

given that members can absolutely rely on the estimator, even that might be a stretch.

And of course the error might lie in the letter that you have received rather than in the estimator?

Sarahspangles

Is this an employer that has to give consent for you to retire? My OH always had two projections depending on whether the employer agreed he was released or not. 

Marcon

Bodovlov said:

Hi pensions experts,

I have a Defined Benefits pension - I won't say at this stage who the employer or the who the Pension administrator is. Upon retirement I have been planning on taking the 25% tax free lump sum and reduced annual pension.

The pension administrators system has an illustrator that provides an estimate based on the retirement date that you enter, I have been using this for several years and (based on a 1st Dec 2024 retirement date) the illustration has only ever varied very slightly, usually up or down by just a few hundred quid.

As I am now just a few months away from retirement I asked for a formal written illustration based on the 01/12/24 retirement date and this arrived in the post this week, I was shocked to see that both the tax fee lump sum and the reduced pension amounts are around 25% lower than all previous (and current) online illustrations.

I know, of course, that the online illustration is just an estimate and that the value of your pension can go up or down based on fund performance etc. etc. however, as I say above, the estimate has changed very little over the last few years so I am quite stunned by the variance.

I have raised this with the pension administrator and they are currently carrying out an investigation and have advised this will take around 10 days. Whilst I was on the phone they ran the same illustration and got the same estimate as me so they could not explain why the formal written illustration is so much lower.

Here's where I get worried...

The pension administrator has now removed my access to the online illustrator so I suspect the result of the investigation will be that there was a "bug" in the illustrator and it has been giving false estimates for years. I did take screenshots of the last online illustration before they took it down as evidence.

My question is; can I (or the ombudsman) hold the pension administrator accountable for a faulty system that has been grossly over-exaggerating my pension illustration? I believe this would fall under the heading of "pension mismanagement".

Basically I have been planning to pay off my mortgage later this year with the tax free lump sum and now this will fall significantly short. Can I claim compensation?

Appreciate any guidance.
Thanks.

No. You've suffered no actual financial loss and, given that you have not yet actually retired, could go on working to make up any 'shortfall', so something known as a 'change of position' defence (which is usually extremely hard to prove) is a complete non-starter in this case.

At best a complaint to the Pensions Ombudsman might yield a payment for distress and disappointment, but it's likely to be at the lower end: https://www.pensions-ombudsman.org.uk/sites/default/files/publication/files/Updated-Non-financial-injustice-September-2018-2_0.pdf

Bodovlov

Thanks for all the feedback so far. I have to say this is very dispiriting.

Based on the comments above it seems that pension administrators can show any figure they like in an illustration with complete impunity. If it's ok to over-estimate my pension forecast by a factor of 25% (consistently for several years and, even now, just a few months before the retirement date) then what is the point of having an illustration?

If a 25% margin of error on a DB scheme is acceptable then it could just as easily be out by a factor of 80% and there are serious figures at play here. How is anybody supposed to plan for retirement when, it seems, the forecast is pure fantasy?

Does nobody hold the administrators accountable for this?

Final point, is the formal illustration I received in the post actually worth the paper it's written on or is that also pure conjecture?

xylophone

Has the correct situation actually been confirmed by the administrator?

dunstonh

Based on the comments above it seems that pension administrators can show any figure they like in an illustration with complete impunity.

No.   Where they use assumptions, they have to be reasonable and there is an expectation that they are correct.    However, sometimes mistakes happen.   

. If it's ok to over-estimate my pension forecast by a factor of 25% (consistently for several years and, even now, just a few months before the retirement date) then what is the point of having an illustration?

If they knew about the error and did nothing then they could face some sort of action.  If no-one had pointed out the issue previously they may not be aware.  Or you may be a one-off.

If a 25% margin of error on a DB scheme is acceptable then it could just as easily be out by a factor of 80% and there are serious figures at play here. How is anybody supposed to plan for retirement when, it seems, the forecast is pure fantasy?

It wouldn't be acceptable, but mistakes rarely are.  But they happen.

Does nobody hold the administrators accountable for this?

Again, is this issue with just your details or is it widespread?  

Final point, is the formal illustration I received in the post actually worth the paper it's written on or is that also pure conjecture?

It will be based on the data given with it.  A mistake may be there too.    Whenever you have human input, a mistake is possible.   Statistically unlikely but it happens.

Phoenix72

Why the reluctance to name? People may have experience of potential issues. As an example there is an issue with ticking a box on the Civil Service modeller that will give incorrect, inflated figures.

hugheskevi

Bodovlov said:

Based on the comments above it seems that pension administrators can show any figure they like in an illustration with complete impunity.

Pretty much, as the name suggests, it is simply an illustration. No detailed checks have been undertaken, a simple tool is pulling data from the system and illustrating it. The data may be incorrect and simplifications used to present the data (eg using latest pensionable earnings rather than final pensionable earnings as calculated under scheme rules and which may be far more complicated).

Bodovlov said:

If it's ok to over-estimate my pension forecast by a factor of 25% (consistently for several years and, even now, just a few months before the retirement date) then what is the point of having an illustration?

It is an estimator which for most of the members will give roughly the right answer most of the time. Some members find that useful. Other members prefer to rely on more robust information and/or calculate their pension themselves to ensure accurate information is held by the administrator and correct calculations have been undertaken as every illustrator will make assumptions and not calculate the pension exactly in accordance with every scheme rule. 

Bodovlov said:

If a 25% margin of error on a DB scheme is acceptable then it could just as easily be out by a factor of 80% and there are serious figures at play here. How is anybody supposed to plan for retirement when, it seems, the forecast is pure fantasy?

There will be reasons for the discrepancy. It will probably be a data related issue with the information being held on the system. Members can help prevent issues like this by scrutinising every payslip, P60, and Annual Benefit Statement to identify any discrepancies and ensure pension is accruing at the expected rate.

If the data is correct, then the modeller should be roughly correct. 

Does nobody hold the administrators accountable for this?

If you had some form of liability, then that raises other issues:

• Why would an administrator expose themselves to risk? A modeller is not an obligation for a scheme or administrator to provide. They would simply not provide it (or, charge the scheme manager a lot more for liability insurance or self-insurance). The more liability you impose, the more schemes will simply provide statutory minimum which probably isn't in the majority of members' best interests. It is a balance between additional cost (which ultimately members pay for one way or another), accuracy, and member expectations.
• Members may have an incentive not to correct errors on their record if they think it might go unnoticed for some time and result in a windfall

Bodovlov said:

Final point, is the formal illustration I received in the post actually worth the paper it's written on or is that also pure conjecture?

If this is a retirement quote, then detailed checks should have been undertaken in its preparation. Perhaps those checks exposed a data issue which has been corrected and caused the difference.

Although checks on retirement quotes are undertaken, errors still happen. If that is the case and a mistake comes to light in the future, the administrator will either pay a shortfall or seek to recover an overpayment, depending on the impact of the mistake despite the pension having been put into payment. This can apply many years into the future, eg, recent Guaranteed Minimum Pension rectification exercises affected many pensions in payment.

Lemon_dr1zzle

For a DB public sector pension to have dropped 25% means something very wrong has happened in the estimate or you’ve been comparing the wrong figures. 

It will help you confirm the scheme and the figures involved.