Prudential reports itself to regulator over AVC failings

Prudential is one of the UK’s largest additional voluntary contributions providers for Local Government Pension Scheme funds. Standard Life, Scottish Widows, Aegon, Legal & General and Clerical Medical also process AVCs.

LGPS members have two options when it comes to increasing their pension benefits. They may buy an extra pension in the LGPS, and are allowed to make additional contributions to buy up to £7,316 of extra pension, if they are in the main section of the scheme, or they may build up a pot of money by saving AVCs, which then provide additional benefits to their LGPS savings. These are conducted through a contracted AVC provider and deducted directly from a member’s pay before tax, providing instant tax relief. Around 3 to 5 per cent of LGPS members make use of AVCs.

We apologise to any customer who has not received the level of service they would expect from us

Prudential spokesperson

New system causes delays

In 2020, members and schemes began to report long delays in the divesting of AVC pots, which led to delays in LGPS members being able to access their main scheme pension. There were also "serious delays" in Prudential attributing contributions to members' individual AVC pots when they pay contributions, according to one source with knowledge of the matter.

When people paid their AVC contributions these payments would be made to Prudential, but in some cases these were not attributed to their individual pots “for months”.

Problems began when Prudential migrated to a new platform it uses to process members’ reports. The new system would reject an entire schedule of members if one of them had left the scheme, causing delays. 

In this scenario, with Prudential’s old system, it would have rejected the departed member and accepted the rest. 

The delays in processing benefits and uploading records were compounded by “very poor communications”, according to the source. 

Prudential introduced a new contact portal and withdrew its customer phone support as the issues rumbled on, while coronavirus infections among Prudential staff further delayed the provider’s ability to deal with the backlog.

Almost all LGPS funds are said to have been affected by these delays. Other providers are also said to have experienced problems during the coronavirus pandemic, as companies were forced to reconcile processing vast swaths of member data while their staff worked from home.

On December 13 2021, the provider attended the LGPS Scheme Advisory Board meeting and gave a report on what it was doing to rectify these issues.

At this meeting, Prudential confirmed it had reported itself to TPR after failing to meet its statutory deadlines. One example included Prudential having not sent back a scheme’s annual return on time, which represents a statutory breach. 

Prudential told the board at the meeting that its performance in areas such as servicing updates and client customer support had improved.

“What we’re hearing from the ground is that that isn’t what administering authorities are experiencing,” the source said. “There are some improvements, but it’s still not a satisfactory service.”

TPR and the Financial Conduct Authority are aware of the problems and have had meetings with Prudential. 

A TPR spokesperson said: “We are aware of the issue and understand the impact these problems can have. Providers of personal pensions, such as Prudential, are principally regulated by the FCA. We have monitored the issues reported by Prudential savers and will continue to work with the FCA as appropriate.”  

The FCA did not provide a statement when contacted.

'Prudential is getting to grips with this issue'

Peter Wallach, director of pensions at the Merseyside Pension Fund, acknowledged that issues have improved. The fund had also taken a degree of comfort from Prudential having reported itself to TPR.

“Our recent experience suggests that Prudential is getting to grips with this issue and that there has been a significant improvement in their client service and responsiveness,” he said.

Other schemes that have published updates to members over the delays include the Derbyshire Pension Fund, the Shropshire County Pension Fund and the Tayside Pension Fund.

According to a notice published by Derbyshire in February last year, delays would mean that members may have to wait longer for their retirement or transfer claim to be completed. Prudential expected this to be resolved by early April 2021, the scheme said. The fund has been approached for comment.

Prudential is compensating the Merseyside scheme’s members at an annual rate of 8 per cent of their fund value based on the delay period. The provider is also paying distress and inconvenience payments to some members.

There has been a significant improvement in their client service and responsiveness

Peter Wallach, Merseyside Pension Fund

The Local Government Association has received a report of a customer being sent multiple compensation payments without having their problems fully resolved.

One person with records at two different LGPS schemes, who was divesting, had their customer information and payment sent by Prudential to the wrong fund. They have been compensated by Prudential.

Private sector schemes, such as the Magnox Electric Group of the Electricity Supply Pension Scheme, have also been affected. In November last year, the scheme announced that it had replaced Prudential with Aegon as its AVC provider for future contributions, in part because the provider had yet to investigate its complaints or rectify its problems.

'People are starting to lose faith'

The LGA facilitates a technical group that has received feedback from members on potential remedies to the problems.

In one feedback session, according to a document prepared in March 2021, one administering authority liked the idea of making the provision of an in-house AVC scheme discretionary. Four administering authorities, however, opposed the idea.

Their opposition was on the grounds that the LGPS is one scheme, and that having some administering authorities without an in-house AVC scheme and others without would result in problems with members transferring between authorities.

Prudential is developing a communication plan for LGPS-administering authorities. While an improving picture, authorities are understood to want a progress plan with timescales.

“This has been going on for so long that people are starting to lose faith that it is going to get better,” the source said.

A Prudential spokesperson said: “We apologise to any customer who has not received the level of service they would expect from us.

“Following the introduction of a new IT system in late 2020, designed to offer our corporate pension customers greater digital capability and online access to their policies, there were delays in our customer service response times as we trained our teams on the new system. This took longer than expected due to the pandemic."

The Prudential spokesperson said the company had been working as quickly as possible to resolve its problems with processing AVCs since it introduced its new IT system, and working with payroll teams to process contributions in line with the new system’s enhanced requirements in a timely manner and to raise queries quickly.

“Where there have been delays in the processing of benefits and contributions, we have made sure that no member has suffered financial detriment as a result of a delay caused by Prudential, and we assess each case on its own merit paying the member compensation, where appropriate.

“We are now processing the large majority of key customer requests within our normal service levels. 

“As part of our efforts to offer greater digital capabilities to our customers, we have also introduced an online service, which is available 24/7, where customers can join an AVC scheme or increase their contributions at their convenience.”

Prudential has incurred the wrath of clients in the past. In 2019, the Combined Nuclear Pension Plan dropped Prudential as its defined contribution provider after rating its member-borne charges for its default and other options as "poor" in an assessment of value for members.

In the same year, TPR wrote to the trustees of 120 pension schemes administered by Prudential, making them aware of potential pension payment errors.