Pensions - Articles - Pension errors: the scandal widens

 These basic blunders, many thousands of which have gone unnoticed for decades, have deprived pensioners of vital income in their later years. Some may have died before they could be compensated.

  

 Firms blame the mistakes on human error, as well as computer-related systemic issues.

 Insurers regularly detect inaccuracies in their customers' policies as part of internal "spot checks" which they routinely carry out on tiny samples of their customer base as part of their normal business practice.

  

 However, because limited numbers of policies are scrutinised at a time and underpayments often take years to come to light, suspicions are mounting that insurers' books could be riddled with millions of other serious glitches, as yet undetected.

  

 Two of the giant insurers in question, Scottish Widows and Prudential, have refused to disclose how many customers are affected by an array of miscalculations found over the past year.

  

 Neither firm will publicly admit the extent of the consumer detriment caused by their own historic errors because they say the data is "commercially sensitive" and their investigations are continuing.

 Insurers have been keeping the findings of these spot checks quiet for decades, but a number have recently come to light following Telegraph Money's investigation into Friends Life, which last weekend was exposed for underpaying 1,200 customers as a result of its own bungles.

  

 Today we can disclose that an additional 5,000 Friends Life customers with Axa and Sun Life pension funds were also underpaid because of "processing errors" made by staff.

  

 The disclosure comes despite the company previously insisting that the results of a spot check relating to 3,000 Winterthur pensions represented the "full extent" of error-related underpayments.

  

 Over the past seven days our mailbox has been filling up with emails and letters from readers who have recently received letters explaining that they are owed compensation as a result of being deprived of their own money for years thanks to insurers' numerical incompetence. The errors typically occur either in the growth of the pension fund or in how the annuity is calculated.

  

 Among dozens of affected readers was a victim of an Aegon administration blunder, which resulted in 60m pounds of underpayments to customers over a number of years. In 2010 Aegon was fined 2.8m pounds by the Financial Conduct Authority and was made to hand the 60m pounds back to customers.

  

 The victim, Chris Nowell, had the wrong management charge applied to his fund during his last five years before retirement. This led to him being reimbursed with 1,040 pounds. A system error meant an additional 0.9pc fee was applied to his fund over five years, leading to the fund shrinking in size.

  

 An Aegon spokesman said: "We have written to all of the customers affected and ensured they have received the correct payments. We have overhauled our systems and put in place stronger processes so this does not happen again."

  

 One particularly unlucky reader, John Elliott, received two letters last year informing him that both the firms looking after his pension money had made blunders when calculating it.

  

 In May he learned that Friends Life had underpaid him by 451 pounds because of a "human processing error" when calculating the loyalty bonus at the end of his policy. Its audit identified that around 5,000 customers with Sun Life and Axa pensions had been affected by the same processing issues.

  

 And then in December Mr Elliott received another letter, this time relating to his Scottish Widows fund. In a blunder reminiscent of Aegon's, Scottish Widows also applied the wrong annual management charge to Mr Elliott's fund over the course of eight years from June 2004 to July 2006. This led to a 1,825 pounds underpayment.

  

 Lloyds, the owner of Scottish Widows, refused to disclose how many other savers were affected by the error, as well as three other separate blunders relating to sets of different customers, some of whom are Telegraph Money readers.

  

 A spokesman said: "We review accounts and processes on an ongoing basis and in the unfortunate event that an issue comes to light we work quickly to resolve it. Our focus is on putting things right when mistakes have been made and that's exactly what we're doing in these cases. We are very sorry for any inconvenience caused."

  

 Another reader, Norman Hinks, has a small pension pot, from a job in the 1970s, which he decided to take as a lump sum in 2004. Just before Christmas last year he received a letter from Prudential, the firm that had paid him the sum, to explain that the amount he'd been given was too small.

  

 The letter stated that the factors used to calculate his benefits were incorrect. Prudential said the mistake occurred because its actuarial calculations were revised in the mid 2000s, but the new numbers were not applied to the pension scheme that contained Mr Hinks's money, along with 36 other people's retirement funds. All of them suffered losses as a result. Prudential is in the process of trawling its books to check if other schemes are affected, but a spokesman refused to indicate how many schemes it was checking as part of the process, or how many of its customers were affected by underpayments.

  

 Telegraph Money also heard from Valerie Reuben, who received a letter from Aviva in August last year to inform her that a part of her pension had been underpaid since 2005. The problem occurred because the bonus she received each year had been wrongly calculated, and this resulted in her being underpaid by 75.21 pounds, plus 7 pounds in interest.

  

 Aviva has confirmed that Ms Reuben is one of about 300 pensioners who have suffered small deductions as a result of Aviva's mistakes, which it found as part of another of its spot checks. Of these customers, 203 were underpaid, and Aviva is still in the process of contacting a total of 400 people who it believes are affected.

  

 An Aviva spokesman said: "Customers do not need to do anything as we are writing to those affected to ensure the matter is resolved."

  

 Ros Altmann, the Government's older workers' tsar, said: "These are systemic industry-wide problems. I've been witnessing them for years but now they're all coming out at once.

  

 "We all know that mistakes can happen in any company but these firms have not invested enough in their IT systems and this has led to errors. The results of these checks should be publicly available and the regulator needs to be more involved."

 She added: "If there is an insurer out there that can stand up and say they have checked all their mistakes and put them right, they must come forward."

  

 A spokesman for the Association of British Insurers said: "Insurers are committed to the highest possible standards of customer service. As in any market where there are millions of customers, mistakes can occur and, when they do, providers will take steps to put them right as quickly as possible."