A pension provider has been underpaying members for a decade by breaching the terms of its policy, WalesOnline can reveal. 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. But a former senior manager at ASW has discovered a discrepancy in payments — and he believes the total shortfall could be hundreds of thousands of pounds if not higher.
The breach 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 has 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 senior manager who exposed the underpayment told WalesOnline he stands to benefit in the region of £500 but he believes more than 1,000 former colleagues are on the same scheme. "You could be talking hundreds of thousands of pounds or more," said the former manager, who spent around a decade at the steelmaker and retired a few years before its collapse. "There are people who have died in the mean-time, whose families are entitled to benefit... If they've done this to other schemes they administer, it could be a huge figure."
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Asked if it made the same "error" with 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. We understand 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.
The former manager — who was, like most ASW workers, based in Cardiff — made the discovery 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 that 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. There was then a long delay and it was not until after he had reported the matter to the financial ombudsman that Wesleyan finally upheld his complaint early last month. In a letter the company told him: "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."
It 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 letter confirmed the switch was not permitted under the scheme's policy. The former ASW manager said: "Am I angry? Not really. I'm not surprised either. 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?"
Five weeks on from the letter, he said that he had yet to receive a payment and that he had spoken with former colleagues who had not been contacted by Wesleyan. He called Wesleyan for an update last week and says he was told that the company was "having difficulties" with the case but had set up a "working party" to deal with it.
A Wesleyan spokeswoman said: "As a mutual, we aim to do the right thing by our customers and if we make a mistake we do everything we can to put it right. 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.
"We apologise to scheme members for this error and will be repaying all monies owed, plus an additional 8% per annum interest payment on top. We plan to contact all those impacted with details of their repayment as soon as possible. We have also been in contact with the member to thank him for bringing this to our attention which is allowing us to fully remediate the situation.“
Asked about the implications for other schemes, she said: "We have done a full review and believe this to be an isolated issue." She declined to confirm the total underpayment in the ASW scheme, how many members were affected, who was responsible for the breach or whether any action had been taken against those responsible.
Former steelworker John Benson, who worked for ASW when the firm went bust in 2002, has long campaigned for staff who lost their jobs following the collapse to get the full value of their pensions. After it emerged that there was a £21million shortfall in the pension pot, the UK Government brought in a protection scheme — but those staff's contributions from before April 1997 were not fully inflation-proofed. Some have spoken out about receiving around half the value of what they are owed.
The people affected by Wesleyan's underpayment — those who left ASW before it went bankrupt — had been more fortunate in retaining their pensions in 2002, but Mr Benson said he felt solidarity with them after learning of the 2013 breach. "It's terrible they [Wesleyan] can do this to hardworking men and women, whether it was done intentionally or not," said the 76-year-old from Dinas Powys. "Good luck to this person for bringing it to your attention and taking it further. It may only be a few hundred pounds per person but that’s a lot of money to people in this climate."
A Welsh Government spokesman said: “We have been consistent in our support for former ASW workers. We have made representations to the UK Government, urging them to provide the pensions security that former ASW workers deserve.”
Wesleyan said it has referred itself to the Financial Conduct Authority (FCA) and the Pensions Regulator. An FCA spokesperson 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 have noticed a discrepancy in your pension payments, you can let us know by emailing conor.gogarty@walesonline.co.uk
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