A pension provider is set to pay more than £500,000 to members after breaching the terms of its own policy. Financial services company Wesleyan administers pensions for many former employees of Allied Steel and Wire (ASW), a major Cardiff-based firm which went bust in 2002. Last month we reported that a former senior manager at ASW had discovered a discrepancy in payments.
The underpayment began in 2013 when Wesleyan changed the pension scheme's inflation measure from the Retail Price Index (RPI) to the typically lower Consumer Prices Index (CPI). Wesleyan apologised for the "error" and vowed to repay the money owed plus an 8% annual interest payment backdated to the start of the breach.
The former ASW manager who exposed the underpayment initially believed he stood to benefit in the region of £500 but he has now received a payment of double that figure. He estimates more than 1,000 former colleagues are on the same scheme. Wesleyan has told WalesOnline that the refunds and compensation will total more than £500,000.
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Since our report breaking the news, we have been contacted by several members of the scheme, some of whom are still to be told how much they are owed, while others have not been contacted by Wesleyan at all. One family who receive a survivor's pension said: "I hope they implement this quickly as a lot of pensioners and survivors are elderly."
A spokeswoman for the pension provider said: "We are on schedule with our plans to contact impacted policyholders by the end of the month. The majority of letters have been issued with the final batch due to land early next week. Payments should be received into designated accounts on or shortly after March 31. This will include all monies owed plus 8% simple interest, along with the re-adjusted monthly pension."
The ex-ASW manager, who spent around a decade at the steelmaker and retired a few years before its collapse, said Wesleyan could owe a "huge figure" if there had been similar breaches of other policies. Asked if it made the same "error" with any other schemes, Wesleyan said it "believes this to be an isolated issue".
The breach affects staff who left ASW with their pensions intact before it went bust. It does not affect those who lost their jobs when the steelmaker went bankrupt as they are on a different pension scheme, called the Financial Assistance Scheme, which has itself caused controversy for years because it is not fully inflation-proofed. You can read more about that here.
The former manager — who was, like most ASW workers, based in Cardiff — discovered the breach last year when he was planning to change the terms of his will. Looking through old paperwork, he came across a policy document from Wesleyan which stated his post-1988 guaranteed minimum pension would increase in line with RPI up to a maximum of 3% per year. This left him baffled because his pension had been going up in line with CPI since 2013.
He made a complaint to Wesleyan last May and there was then a long delay. It was not until after he had reported the matter to the financial ombudsman that Wesleyan finally upheld his complaint. The company wrote to him in January: "In 2013, a decision was made by Wesleyan to change the indexation used for post-1988 GMP (guaranteed minimum pension) benefits from RPI to CPI. This decision was based on the then-Government's decision in 2011 to switch to CPI rather than RPI to calculate increases in social security payments and public sector pension benefits."
The letter went on: "The switch from RPI to CPI based calculations was subsequently extended to the minimum statutory increases required for private sector pensions and many pension schemes made the same switch at that time. However, there was no statutory application of the Government's decision to private sector pensions, and the ability to make this change therefore depended upon this being permitted under the wording of the relevant policy document."
The switch was not permitted under the ASW scheme's policy. Speaking last month, the former ASW manager told us: "Having dealt with big corporations in my union days, I'm never surprised at what people will do. But I think it's a potentially huge scandal. How many other pension providers might have wrongly changed from RPI to CPI after that legislation?"
The Wesleyan spokeswoman said: "Once we were made aware of a potential issue with annuity payments on the ASW pension plan by a scheme member, we immediately began a detailed review and concluded the decision to change the inflation measure from RPI to CPI in 2013 was not in line with the terms of the scheme. At that point we decided to make full and accurate remediation to all of those impacted and reported the matter to our regulator."
Wesleyan has refused to confirm the total underpayment in the ASW scheme, how many members were affected, who was responsible for the breach or whether any action has been taken against those responsible. It has referred itself to the Financial Conduct Authority (FCA), which said: “We welcome the steps Wesleyan is taking to provide compensation to affected customers, but we continue to monitor the issue to make sure customers are treated fairly. Firms must make sure their products are fair value and follow the terms they agreed with their customers. Where firms identify this is not the case, they must take action to address the issues. That includes paying redress to impacted customers where appropriate.”
If you've noticed a discrepancy in your pension payments or have another story for us to investigate, you can let us know by emailing conor.gogarty@walesonline.co.uk
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