Why Prudential may have been over-prudent with your pension fund
Life assurance companies like Prudential deal with millions of pounds worth of pension money every day, and they have done so for quite a long time. You would think, therefore, that they would know how to do it, wouldn’t you?
Apparently not. Prudential is now writing to 39,000 customers to tell them it messed up their pensions funds seven years ago, and is now offering them a total of £4m in "correction" payments.
Prudential manages funds worth £135 billion for eight million policyholders in the UK, but claims only those people who had a unit-linked pension fund with Scottish Amicable who transferred, switched or partially surrendered their policy between June 2004 and December 2008.
How did they get it wrong?
The problem arose owing to an issue with reclaiming tax credits on dividends paid to pension funds. What should have happened is that the tax credit on dividends within these Scottish Amicable pension funds should have been credited to the fund by Prudential, who can claim back the tax credit against its own tax liability. Instead, it looks like Prudential got the tax credit and the pension funds didn’t.
Prudential is claiming it was a record keeping issue rather than anything untoward, and the error was discovered in December 2008 and swiftly corrected. However, Prudential were required to report the mistake to the industry watchdog the FSA.
Clearly though, the pension funds concerned will be adversely affected (and Prudential’s bank balance healthier) owing to this mistake. As a result, Prudential are offering “correction” payments to all customers affected. Apparently, most of the affected policyholders will receive payouts worth less than £100, but 9000 customers are set to pocket between £100 and £1000, while a further 100 will be paid £2000 or more.
Note that customers are categorically not getting “compensation”, Prudential are merely “putting them back into the position they would have been in”. Prudential’s UK communications director Steve Colton also said that “there is no consistent market practice for the treating of tax credit but on the basis of treating customers fairly we wanted to make sure all of our customers were treated in consistent way.” Perhaps the mechanics of crediting the pension funds varies from company to company, but surely the principle of repaying tax creits to pension funds rather than pocketing the cash is not in question?
So is your pension fund correctly calculated?
Clearly if you are one of the affected people who had a Scottish Amicable pension fund, that was transferred, switched or partially surrendered between June 2004 and December 2008, you should have received a letter from Prudential detailing your cash windfall, and if not, you should contact Prudential directly.
However, possibly more worrying is that this issue only came to light because a Telegraph reader wrote to the paper in concern- Prudential were not required to make this information public and indeed there is no information on the Prudential website concerning the issue, or exactly how the “correction” payments have been calculated.
Whether or not your own pension fund, whomever the provider, has been ‘corrected’, you may never know. Unless you get a magic letter.