USS and University of Southampton make AVC blunder

Mrs E’s policy ended in February 2016, but she continued making contributions until September 2018. Once the mistake became apparent, she requested that she be allowed to use her overpaid contributions to purchase additional pensionable service.

She had purchased such a policy in 2004. Though the policy itself stated that AVC payments would cease being deducted after February 2016, she continued to pay them for another two years. 

Her employer, the University of Southampton, acknowledged the mistake but claimed that the USS trustee had not notified it that the policy had reached its end date. 

Mrs E asked to be allowed to continue making the payments to purchase additional pensionable service at the same rate agreed in the policy. She said the trustee had failed to tell her the policy had ended too, and added that she thought the date stipulated in the policy was only an estimate. Thus, she argued, she had not been given a chance to review the decision she made in 2004.

Accepting that a mistake had been made, the trustee offered Mrs E three options: a lump sum of added years' contributions worth £1,950, to be paid into the income builder section of the scheme; a total contribution amount of £6,193 to be paid into the investment builder section, or a refund of all contributions minus tax relief.

Mrs E complained that these options were not to her satisfaction, but the trustee said the policy had been clear about the end date, it was not obliged to inform either Mrs E or UoS that the policy was due to end, and that Mrs E’s misunderstanding did not entitle her to continue accruing benefits.

Her complaint eventually found its way to the Ombudsman’s adjudicator, who found in favour of the trustee and UoS. The adjudicator said the prompt response by UoS in stopping the contributions, and the three options then given to Mrs E, was “more than reasonable in the circumstances”.

Moreover, while the mistake did amount to maladministration, the response had been both swift and comprehensive enough to mitigate any inconvenience Mrs E may have suffered.

Mrs E persisted, however, arguing that had her contributions not been deducted in error, she would have invested them in a stocks and shares Isa with an annual return rate of some 8.2 per cent. She therefore argued that if the base interest rate were applied, she would in fact have suffered financial loss.

The case then ascended to pensions ombudsman Anthony Arter, who partly disagreed with the adjudicator’s verdict.

Arter found that the three options offered by the trustee were indeed reasonable, and would accord with her desire to increase her pension benefits.

He also found that she had not been able to provide any evidence beyond the benefit of hindsight that she would have invested in the Isa.

Arter did acknowledge that she had suffered distress and inconvenience, but added that the speedy response by the trustee and UoS meant that was insufficient to warrant compensation.

He concluded, however, that the option to refund the contributions without tax relief should come with interest applied at the Bank of England base rate.

*This story has been updated, having incorrectly referenced the University of Sussex