The Financial Conduct Authority has paid £200,000 to members of its own staff scheme after discovering benefit calculation errors affecting more than 1,200 employees.
Ensuring schemes have clean data and compliant processes has been an increasing focus for the industry since the rise of auto-enrolment, but experts said many schemes still do not conform to their own rules.
DC data errors
Earlier this year one of the big three consultancies Aon Hewitt confirmed 20 schemes it administered saw delays to the onset of their derisking strategies, leaving members exposed to riskier assets for up to four years.
The earliest case discovered started in 2011 and risked market hits to savers' pension pots.
The issue was originally brought to Aon’s attention late last summer. An average of roughly 100 members in each scheme were thought to have been affected.
The company worked with clients to rectify the problem. “We are aware of the issue with certain DC schemes administered from the Glasgow office and are working actively to correct it," a spokesperson said at the time.
The FCA explained how the benefits error came to light during an audit. A spokesperson said: “We identified errors in the calculation of pension contributions to the FCA Pension Plan, the payments of flexible benefits and the cost of purchasing additional holidays for the period October 2011 to July 2013.
“This has meant that some individuals have not received the full value of their contributions to the FCA pension plan, the correct value of their monthly flexible benefits and/or the correct calculation when purchasing additional holiday.”
The errors were traced to an internal system with a high volume of personal changes, such as changing working patterns or reaching a significant age.
After a full data review, the FCA has increased checks and validations, provided team members with additional training and reviewed all payments to check the accuracy of systems calculations.
“The error has now been corrected and we are confident it will not happen again,” the spokesperson added.
Anne-Marie Winton, partner at law firm Nabarro, said: “It is clearly extremely embarrassing for the FCA to have to admit to a pensions error costing £200,000 to sort out and affecting ‘a large number of employees’, according to the two short sentences… on page 122 of their 2014-15 accounts.”
If you look back over the deeds and compare it with what is done in practice, gaps appear
Girish Menezes, PMI
Not uncommon
Fergus Clarke, board member of the Pensions Administration Standards Association, said many schemes can uncover errors in their benefit calculations, especially for historic schemes which may have moved from manual processes.
He said: “It’s not uncommon to see systematic error coming through. A lot of work is being done at the moment with the regulator’s interest in data completions and data quality to ensure schemes are providing benefits.”
Mitigating risks
Clarke said PASA had consulted on codifying different administration errors to make providing solutions easier.
“A lot of the in-house operations were quite keen to see some sort of codification of errors and that’s something we’re starting to develop within PASA,” he said, but added: “The third-party administrators are less keen on it because they have their own systems in place.”
Clarke said managing risk of error is all about putting in place controls and systems to mitigate such risks. “The stronger the control environment, the less chance of those errors coming through,” he said.
Errors tend to arise where schemes have entrenched systems and processes but have not properly consulted the scheme rules, said Girish Menezes, chair of the Pensions Management Institute’s London group.
“The biggest issue is trustees need to grasp the nettle and audit data, audit the benefit calculation and make sure administration is being done as per the scheme rules and deeds.”
He added: “Over years, if you look back over the deeds and compare it with what is done in practice, gaps appear.”
