Standard Life blunder hits pension plans

The company has written to nearly 7,000 holders of unit-linked pension plans telling them their statements had contained misleading information for the past seven years.

Around 4,200 pensions were worth less than policyholders had been led to believe – in some cases tens of thousands of pounds less – with 2,600 seeing theirs enhanced slightly.

This follows another Standard Life debacle earlier this year, over its Sterling Fund, when it was forced to capitulate to investor anger and pay compensation of 100 million after it attempted to cut nest-eggs in another row over pricing.

The latest issue dates back to shortly after the millennium when Standard, along with other companies, re-priced the vast majority of its pensions book in preparation for the launch of stakeholder pensions.

A Standard Life spokesman said: "The number of policies affected is a small proportion of the pension policies that were repriced in 2001-2.

"However, we clearly needed to correct customer records. This put customers back into the position they would have been in had the error not occurred.

"We obviously regret these errors and we have put in place further controls to reduce the likelihood of this happening again."

This will come as unwelcome news when pension investments – the biggest investment many people will ever make – may already have fallen in value by up to a third, following the stockmarket crash.

The most disturbing errors, which are not uncommon, occur at retirement. There have been cases where individuals are considering early retirement based on figures detailing the size of the retirement income they might expect. They then give up their job – only to be told a few months later that a mistake was made with the calculations and the pension they expected will not be paid.

When it comes to personal pensions, either unit-linked or unitised with-profits, correctly valuing the fund can be a minefield.

Mistakes can happen because the wrong tax is applied, or the investments themselves are misvalued because, for example, a particular income stream coming into the fund is forgotten.

Unit-linked pension funds see investors given units in pooled funds in return for their contributions. If a fund has been wrongly valued at the point you buy into it, then you will be attributed with an incorrect number of units.

Similarly, there could be something systematically wrong with the methodology. Some companies take their fees by cancelling units, and it was such an exercise involving the reorganisation of charges which led to Standard's error.

Mark Pearson, head of investment strategy at insurer Aegon, says: "Many policies will give the company the right to change your number of units."

However, even if the contract allows your pension company to claim back units, it may still not be able to do so without compensating you.

Pearson adds: "The key thing is that all insurance companies have a legal duty to pay the right investment return to individual policyholders, irrespective of how many units policyholders were told they have.

"It is important that they do not overpay anyone, because this damages the interests of other investors. But it is also important not to shortchange any investors."

But this does not absolve companies from a duty to compensate policyholders if they are badly affected by any errors. Legal precedents point to the case for compensation being strengthened depending on the length of time the error has run, and the number of times it has been confirmed to the policyholder in writing.

Companies sometimes pay out too much and in such cases will usually go to court to reclaim the money. However, one precedent-setting case turned on the fact that the company had confirmed three times in writing that the sum was correct, after the policyholder had specifically queried it.

Pensions lawyer Colin Greig of Biggart Bailey says: "Any case for compensation would be strengthened if policyholders can show they relied on the statements which they believed to be correct, and would have taken different action had they realised they had been misled."

Malcolm McLean, chief executive of the Pensions Advisory Service, said the amount of time involved and the extent to which investors relied on this information from the company was crucial.

He said: "If it has gone on for years then it is right to question why the company involved did not spot the mistake. It should be spotted and rectified at the earliest opportunity."

And he added: "But you also have to ask what the impact of receiving incorrect information was.

"Would the individual concerned have made other decisions or investments if they had been in possession of the correct information? If that is so then they should be compensated."

A 30,000 HIT

RICHARD Laming's retirement plans have taken a 30,000 hit thanks to the Standard Life pensions blunder.

Understandably, he is furious and has complained to the Pensions Advisory Service. If this mediation body is unable to resolve the dispute, he plans to take the matter to the Pensions Ombudsman.

He was shocked to be informed, via correspondence with chief executive Sandy Crombie, that his units were not guaranteed, as he had believed them to be.

Laming was told he had been accredited with too many units following a repricing error which started in 2001. Rectifying it meant clawing back those units and the value they represented, thereby cutting the value of his Standard Life pension plan from 180,000 to 150,000.

Laming says: "I feel very let down. We all know that the value of our units can go up and down, but now we discover the number of units is not itself sacrosanct either, but can be clawed back. On this basis, can any Standard Life customer trust the statements they receive and be confident these might not also be subject to a future correction?

"I took the information the company gave me on trust, as there was no way of checking it myself. I have had several pension reviews done in recent years and each time the company confirmed this information to my financial adviser. My entire pension planning decisions have been based on the information on my statements."

The company acknowledges that a mistake was made and has offered Laming 3,000 compensation, which he finds unacceptable.

He says: "Pension providers need to give policyholders clear, upfront information which they can check for themselves.

"The big problem at the moment is you are completely in their hands and can't challenge what is going on.

"Investors are willing to take the ups and downs of the market, but they don't expect to have to accept the ups and downs of pension company mistakes as well."