Adnams and Jacobs compensation cases highlight admin risk

Recent compensation secured by Adnams and Jacobs Engineering scheme members from third-party providers has demonstrated the importance for robust oversight of them by managers.

Failure to govern these relationships can result in a hit to members' retirement income and a loss of trust in the scheme.

A member of the Adnams Pension Fund received a £900 distress fee after Aviva provided "incorrect information" to him on the level of retirement benefits he would receive upon taking voluntary redundancy.

Standard Life had to pay a lump sum, extra payments and £200 in distress paid to a member of the Jacobs Engineering Scheme after mistakes they made in investing his additional voluntary contributions (AVCs).

Schemes have been urged by consultants to monitor their administrators to reduce the risk of such errors and to introduce a regular review of AVCs to avoid them falling through holes in the governance.

Third-party mistakes

Jacobs scheme member Mohan Karmarkar said Standard Life had failed to follow his instructions to invest part of his AVCs into a particular fund in the lead-up to his retirement.

It also failed to provide scheme administrators Jardine Lloyd Thompson (JLT) with the fund value and, alongside JLT, caused a delay in the payment of the AVC fund. 

Ombudsman Tony King decided Standard Life had made an error in paying Karmarkar’s additional contributions and had failed to correct it, as it was to the member’s advantage. 

He told the provider to pay an amount to the scheme trustees sufficient to secure Karmarkar an additional annuity of £223 a year. 

He also ruled it must pay him £1,489 and an additional £200 as compensation for the “unnecessary distress and inconvenience caused".

Robert Lee, a member-nominated trustee of the Adnams scheme, complained about incorrect data provided by Aviva.

The information concerned the level of benefits he would receive on retirement if deciding to take voluntary redundancy. It had increased the predicted value of his pension by 20%.

Lee chose to retire after the company had agreed to pay him £30,000 and was not able to take up his previous role after his replacement had already started.

A financial adviser to the scheme had been provided with the incorrect figure by Aviva due to double-counting Lee’s guaranteed minimum pension. King awarded Lee £900 for distress and disappointment.

The Adnams fund, which closed to accrual in 2005, still manages benefits accrued up to that point and said it employs third-party advisers "in a number of areas".

The scheme would not be drawn on what safeguards it did have in place.

A spokesperson said: "Some trustees are unchanged since 2005, others are new. Their responsibilities have not changed and are broadly the same as those of any other pension trustee board and governance safeguards are probably similar to those in other schemes."

Monitoring third parties

Zoe Lynch, partner at Sackers, said it was down to trustees to take responsibility for monitoring relationships with administrators and to use their influence to open avenues of communication.

She said, depending on the size of the scheme, trustees and scheme managers should meet quarterly to monitor relationships and ensure they continue to function properly. This monitoring, she added, was "hard" but necessary.

She said: "It doesn’t matter if the independent trustee is the most trusted independent trustee in the industry, if the administration’s going wrong that’s what members will see as their representation of the pension scheme."

Service standards in the administration agreement are the measure schemes should use to ensure the administrator is performing as agreed.

If the scheme finds itself in the role of mediator, it is advised to stick up for members on a personal level and use the fact it sends business the way of the provider as a bartering tool. 

The Jacobs Engineering decision on AVCs and Standard Life highlights a wider problem with governance around this type of benefit.

Ian Bell, head of pensions at Baker Tilly, said schemes should pay more attention to AVCs and recognise them on their risk register with regular reviews.

He said it was easy for trustees to hand the responsibility over to the insurer after the member had paid the money in, so trustees tended not to pay much attention to it.

Bell added: “AVCs may not be a massive risk, but that doesn’t mean they should be ignored.”