The Pensions Regulator has written to the trustees of 120 pension schemes administered by Prudential making them aware of potential pension payment errors.
Members of these schemes could have been receiving the wrong pension for nearly 30 years as a result of incorrect equalisation calculations.
The earlier trustees bite the bullet and sort out the detail of the benefits payable, the more confident they can be that they are meeting their legal obligation to pay the right benefit to the right people at the right time
Jane Kola, Arc Pensions Law
The errors were brought to the attention of TPR by Prudential itself and revealed by Pensions Expert’s sister publication FTAdviser on August 16.
A Prudential spokesperson said Prudential is contacting trustees of affected active schemes to raise its concerns and agree what actions, if any, should be taken.
It is also contacting members of affected wound-up schemes to let them know and to provide them with redress for any underpayment of retirement benefits.
The spokesperson said Prudential has identified defined benefit schemes “where incorrect calculations may have been made to members’ benefits when schemes attempted to equalise benefits after the Barber judgment”.
Equalisation of retirement ages between men and women has been a persistent headache for schemes of all sizes since the European Court of Justice’s 1990 Barber ruling, and subsequent legislation required schemes to make benefits uniform across genders.
A much wider problem
“The issue identified with 120 schemes administered by the Prudential, on its own is not likely to be a big issue as the schemes affected are likely to be small,” said Jane Kola, partner at Arc Pensions Law.
She said the case is an example of a much wider problem, which is that “legal formalities to make effective benefit changes have not been respected in the past and there has been a disconnect between what the rules say and what administrators pay”.
Commenting on the errors, Penny Cogher, partner at law firm Irwin Mitchell, said it is not surprising that some of the insured schemes have residual Barber equalisation issues that are only now being spotted.
“I have found some insured schemes to be some of the worst-administered pension schemes in the UK. This is mainly, I think, due to the poor services provided by the insurance companies,” she said.
She added there are likely to be similar problems present in older insured defined contribution schemes.
Still coming to light
Chair of the Pensions Administration Standards Association, Kim Gubler, said “We’ve seen a number of schemes with Barber issues over the years. It took many years for there to be certainty over how the tranches should be treated. Some realised their original interpretations were incorrect and these were sorted. Others are still coming to light, particularly when there’s been changes to scheme sponsor and the due diligence spotlight uncovers it.”
According to Ms Kola, “equalisation is only one issue which happens to be the one schemes check”.
She said that when trustees look in more detail at the documentation history of their pension plan and the calculation routines used, they seldom find that everything is in order.
“The earlier trustees bite the bullet and sort out the detail of the benefits payable the more confident they can be that they are meeting their legal obligation to pay the right benefit to the right people at the right time,“ she said.
TPR advises trustees who think members’ benefits may not have been recalculated correctly after either the Barber case in 1990 or the Lloyds guaranteed minimum pension equalisation ruling in 2018 to speak to their legal and actuarial advisers.
