Scot Eq fined £2.8m and agrees to pay £60m client redress

Scottish Equitable has been fined £2.8m by the FSA for a series of administrative failings including underestimating the value of customers' future pension benefits to the tune of almost £7m.

The life and pensions company, which was re-branded Aegon after its parent company last year, has begun a customer redress exercise following the breaches between 2002 and 2010.

It estimates the cost of redress will be £60m, of which £30m will be paid by the end of the year.

Scottish Equitable identified about 300 systems and controls failings, five of which were serious, the FSA says, and led to customer detriment.

Between 2002 and 2010 it failed to ensure effective internal governance arrangements were in place to manage the risks its customers were exposed to in a number of areas.

In particular, the regulator says the company lack of organisation and administrative processes meant almost 240,000 policyholder documents were not issued. It says 26,000 remain to be issued to customers.

Elsewhere, Scottish Equitable failed to trace in excess of 200,000 'gone away' policyholders and failed to calculate clients' Guaranteed Minimum Pension (GMP) payments correctly.

According to the FSA, it "significantly underestimated" the value of future GMP benefits resulting in detriment for 774 customers of between £6m and £7m.

The company also failed to identify and resolve systemic errors in calculating Fund Charge Rebates and Fund Value Rebates in respect of 25,000 policies resulting in customer detriment of about £5.7m and £2.8m respectively.

Finally, it failed to match Department of Social Security (now DWP) contributions to personal pensions for approximately 2,500 customers resulting in approximately £6.7m worth of detriment.

Margaret Cole, FSA managing director of enforcement and financial crime, says: "The redress package is significant news for the customers.

"This case shows the importance of getting customer administrative procedures right and fixing them quickly when they go wrong. This is a key part of treating customers fairly.

"By letting the issues build up over such a long period Scottish Equitable made it even more difficult to fix the problems and this led to delays in getting compensation to customers."

The FSA did give credit to Scottish Equitable for bringing the issue to its attention in September last year after attempting to rectify the problems in-house. The £2.8m fine would have been £4m but the company qualified for its settlement discount scheme.