Memorable Cases

In this occasional series of blogs, I recall some memorable cases which I have dealt with.

Mr M’s FSAVC Pension Plan with Aviva

Mr M is in his early 60s and spent his whole career as a teacher, joining the profession at age 23.

In the early 1990s he was advised by Colonial Mutual (now part of Aviva) to top-up the benefits he was building up in the Teachers’ Pension Scheme with a Free-standing Additional Voluntary Contribution pension plan (or FSAVC for short).

Such pension plans enabled members of occupational pension schemes to save more for retirement, as in the 1990s it was not permitted for members to take out personal pensions.

FSAVC plans, whilst useful in some ways, had one major drawback. The policy charges were usually very high and they ate into the amounts being saved. It is not uncommon to see fund values being worth less than the amounts contributed, even after more than 20 years of regular saving.

FSAVCs were not, however, the only option. All employer schemes had to offer members the option of paying more in – known as paying Additional Voluntary Contributions or AVCs for short.

AVCs tended to have one big advantage over FSAVCs – the policy charges were much lower, or even nil. So, more of the member’s contributions were invested than with an FSAVC and over time this leads to a larger fund value.

On top of that, in the public sector in particular, it was possible for members to buy extra years of service. As benefits in public sector (and other “final salary” schemes) are based on length of service and final salary, buying more years of service delivers higher benefits on retirement.

Due to the advantages of “in house” AVCs, FSAVC pension plan providers were obliged by law to explain their plan might not be the most cost effective option and people should investigate the “in house” alternatives before making a final decision.

Mr M came to me to say he had no recollection of this happening when he took out his FSAVC and was it possible this represented mis-selling?

I investigated the sale for him and identified not just that failure but a number of other breaches of the regulatory selling rules as well. I sent Aviva my report and argued that Mr M would most likely have paid more into the Teachers’ Pension Scheme if he had not been misled on a number of issues.

Aviva eventually accepted this was the case and agreed to calculate if Mr M had lost out as a result.

Aviva looked at the difference in charges between the FSAVC and the “in house” AVC equivalent plan and offered Mr M just under £3,500 in compensation.

I argued they had chosen the wrong calculation method as I believed Mr M would in fact have bought extra years of service, being as he was a career teacher.

After months of arguing, Aviva agreed to recalculate on this basis and his compensation rose to just over £23,000, due to the value of “final salary” benefits.

I find in many instances firms like Aviva will try to carry out the calculation that leads to the lowest amount of compensation, rather than taking an unbiased view of the most suitable method. Indeed much of my time is

spent arguing for the correct calculation method because the sums involved can be life changing.

Mr M’s is a case in point and sticks in my mind because of the impact the higher compensation had on Mr M’s life. Very sadly he suffers from macular degeneration, which is an incurable disease of the eye, and he is slowly losing his sight. The compensation has enabled Mr M to take retirement 2 years early and spend that extra valuable time travelling and seeing the world with his wife before his eyesight finally fails.

So this was a very satisfying and memorable case for me and a life changing (and life enhancing) outcome for Mr M and his family.