Yvonne was told she'd get a pension of £2,348 a year when in fact it was just £1,144: One of many basic errors insurers are getting away with

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Struggling: Widow Yvonne Davies is getting a pension that is half what she had expected to receive

Pensioners are having their retirements destroyed by basic administrative blunders caused by Britain’s biggest insurers.

We have delved into official files and uncovered scores of incidents where seemingly innocuous clerical mistakes have caused lasting damage to savers’ plans.

The errors include miscalculating pension income payments, telling customers their nest egg is hundreds of thousands of pounds more than it is and even incorrectly giving advice about taking a pension as a lump sum.

But, incredibly, regulators and independent adjudicators who probe these cases frequently let down those affected. Often, they award trivial amounts of compensation because the mistake amounts to a basic administrative error.

What they fail to recognise - despite the pleas of the savers - is the huge impact the mistake has had on their lives. Sometimes the blunder takes years to put right - and in the meantime the customer has planned their whole retirement based on the incorrect information.

 

Today Money Mail calls for pension companies to be held to account. We want urgent action to protect savers, many of whom have little or no experience of dealing with financial matters.

Greater onus needs to be placed on the financial and emotional damage that misleading letters, vague terms and conditions, confusing contracts and terrible customer service can have on people who rely on this information for their retirement planning. It has never been more vital for firms to be held accountable for their errors and mis-information.

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Yvonne Davies with her husband Clive on their wedding day

From next year, anyone retiring will be able to take their pension in cash instead of being forced to turn it into an income for life using an annuity. This is a huge step and will, for the first time, give savers the power to spend their money how they want. But it is also a massive risk because any bad decision could have irreversible consequences.

The Government has recognised this and is giving everyone a free session of guidance. We are also campaigning for savers to be given a pension passport so they can have a record of all their nest eggs. This help, though, will be useless if the information they rely on is riddled with mistakes.

Our investigation looked at just a fraction of the thousands of cases involving pension errors that are taken to independent adjudicators, such as the Financial Ombudsman Service and the Pensions Ombudsman, every year.

In one particularly damaging case, an error by Scottish Widows means that three years after her husband Clive’s death, Yvonne Davies is struggling on a pension that is half what she had expected to receive.

In 2003 Clive, who worked as a data processor, turned his pension into an income with Scottish Widows after seeing a financial adviser. He specifically asked for Yvonne to get an income after his death. Shortly afterwards, the couple, from Caerphilly in South Wales, received a letter from Scottish Widows.

It said Yvonne would receive £2,348 a year when Clive passed away. Clive died from cancer in 2011. Not long after that, Yvonne was told by Scottish Widows that the quote she’d received in 2003 was a mistake. Instead, she was told, she would receive £1,144 a year, rising with the cost of living.

Yvonne complained but Scottish Widows rejected her case, so she took it to the Financial Ombudsman. The ombudsman said Clive should have been reasonably aware the figure quoted in the Scottish Widows letter was incorrect. It awarded £500 compensation.

Yvonne says: ‘Scottish Widows says it was just a mistake and that’s tough luck, but it’s turned my life upside-down. What bothers me more than the money, though, is the way Scottish Widows and the ombudsman suggest Clive knew what he was doing.

‘He was a good man, he was my husband for 47 years, and I know it would never has crossed his mind that I should receive less than half our pension. I honestly think he didn’t understand what he was setting up.’

A Scottish Widows spokesman said: ‘We have apologised to Mrs Davies for the original error made with this policy and have provided compensation for the distress and inconvenience this has caused.’

In other cases we uncovered:

• Prudential wrongly told a woman she could take her entire pension pot as a tax-free lump sum — twice. The woman took out a mortgage based on this information. The Pru later admitted the mistake. The Pensions Ombudsman ordered the firm to give the woman an interest-free loan to pay off the mortgage debt. But the firm was allowed to secure this against her property so it could recover any cash on her death. She received just £500 compensation.
• A man was told by American Life Insurance Company (ALICO), now owned by insurer MetLife, that his pension pot was worth £763,300. He gave up his job believing he could afford to retire. In fact his pot was worth only £433,000. ALICO was ordered to pay him £250 for distress and inconvenience. The man was unable to get his old job back.
• Zurich told a customer his savings pot would give him a £15,000-a-year pension and a £38,000 lump sum. The man gave money to his family and bought a new car. But on the day he was due to retire, Zurich said it had made a mistake. His pension was instead £9,500-a-year and the lump sum £27,500. The Financial Ombudsman did not make Zurich pay any compensation more than the £250 it had already given the man. It said the saver should have questioned the figures, as he had previously been given correct ones and his individual pension pots were properly stated.
• Phoenix Life repeatedly sent a man quotations for his £78,000 pension pot, wrongly showing his retirement age as 75 when the correct age was 60. It also gave him incorrect figures for the charges he would face to move his money elsewhere. He told the Pensions Ombudsman these blunders had made it impossible to make an informed decision about his retirement. Phoenix said a computer error was to blame. The man was awarded £250 compensation.
• A man was told in two letters from insurer Friends Life he would receive a pension of £1,100 a month. In fact, he would receive £1,100 a year. Friends Life said it was a misprint. The man argued that when he was sold the pension in 1987, he was told he could expect an income of £1,000-a-month. The Financial Ombudsman said he had received earlier correct quotes and should have spotted the difference. He received £275 compensation.

And these cases are just the tip of the iceberg. In all these scenarios, retirees have plucked up enough nerve to go to the ombudsman and then have had to fight their case every step of the way.

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Pension mistakes: Last year, not-for-profit disputes organisation The Pensions Advisory Service received 666 complaints about mistakes of overpayments alone

Hundreds more don’t even get as far as this. In many cases seen by Money Mail, complaints never make it to the ombudsman because the issue is to do with baffling information sent by their insurer. These savers are fortunate enough to realise there is confusion before they make a mistake.
Last year, not-for-profit disputes organisation The Pensions Advisory Service received 666 complaints about mistakes of overpayments alone. Chief executive Michelle Cracknell says: ‘With the new choices that will become available from April next year, it is very important that pension schemes and providers give customers a concise and accurate statement of the options available’
The Pensions Regulator has also launched an in-depth probe into record-keeping at schemes. But as yet there are no signs of a change in attitude from either the ombudsman scheme or the regulator towards the lasting damage caused by pension mistakes.
The Financial Ombudsman Service can make firms pay up to £150,000. It receives around 1,000 complaints about pensions firms’ administrative mistakes a year and finds in the customer’s favour in one in three cases. It can recommend firms pay more, but they do not have to stick to this. It says it is down to the City regulator, the Financial Conduct Authority, to fine firms who make repeated errors.
A Financial Ombudsman spokesman says: ‘Naturally, people who have faced long or fraught battles with a business sometimes expect to be compensated for this - though these expectations can range from a simple apology to payments in the thousands. We also consider the emotional impact on people — and can tell businesses to make an additional payment.’
Tony King, the Pensions Ombudsman, says: ‘There are many cases in which there have been awards against insurers to put right financial loss, some substantial.
‘There will be complaints that are not upheld at all, and others where the error by the insurer is not the immediate cause of any financial loss. In the latter type of case, we may make an award because the error will have caused distress, disappointment or inconvenience.’
Joanne Segars, chief executive of the National Association of Pension Funds, says: ‘Mistakes in administration can have significant consequences for individual pension savers. Our members handle millions of transactions and changes every month. While the vast majority are processed correctly, regrettably mistakes still happen from time to time.’
A spokesman for trade body the Association of British Insurers says: ‘With 20 million individual pension policies in force, administrative errors may occur. Insurers will do all they can to reduce the risk of mistakes happening, but when they do, they will rectify them as soon as possible.’
Clive Adamson, director of supervision at the Financial Conduct Authority, said: ‘We expect every firm we regulate to make sure it treats its customers fairly and considers good outcomes at all times.
‘Getting the basics right is an important part of this. Where an error is made by the firm, it should correct it and make sure the customer has not lost out as a result.’