UK - Trustees and administrators must take greater care in ensuring members are properly informed about AVCs, the pensions ombudsman warns.
David Laverick spoke out after a claim brought against Prudential by Mrs Durai – a member of the Teachers’ Superannuation Scheme.
She said the insurer had failed to explain that with less than five years’ service it would be inefficient for her to invest in an AVC.
Mrs Durai claimed that by investing in AVCs, she suffered a financial loss due to the income tax she will have to pay on her excess contributions.
Laverick commented: “The injustice suffered by Mrs Durai is that she made additional voluntary contributions to Prudential in the expectation that there was sufficient room for her to improve on her benefits from the TSS.
“Accepting that she would not have made AVCs to Prudential if she had been told that there was little room to improve on her benefits from the TSS, the appropriate remedy is to return the total contributions she has made, with interest.”
Norton Rose pensions partner Lesley Browning said the complaint, while not strictly concerning trustees, highlighted the problems that surrounded AVCs.
Browning added that trustees must ensure that any AVC information – or any information which may affect a member’s AVC – is passed on promptly, otherwise trustees may be open to challenge.
She quoted a similar determination against Northern Rock in May 2002, in which a member complained that he had suffered financial loss as a result of the trustees failing to inform him of changes in the investment performance of the AVC fund.
She said: “The ombudsman determined that trustees, as a matter of good administration, should have provided copies of the notifications of changes to interest rates to the members as and when they occurred.”
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