Pension admin errors are surprisingly common. But what do you say to your members about them?
When DB pension schemes clean up their data, they often discover pension errors that have affected members’ payments for decades. The question then becomes how to tell members about these mistakes in a way that maintains their trust while also taking the necessary action.
The trustees’ dilemma
Discovering historic pension errors puts trustees in a difficult position. They have a fundamental duty to ensure members receive the correct pension, and, when they uncover problems from the 1980s or 1990s, there’s an obligation to make things right – an obligation that trustees feel keenly.
But correcting historic pension errors costs money, sometimes significant amounts. Employers who fund these schemes can baulk at the potential liability. And it’s difficult when the mistakes happened so long ago that nobody involved still works for the scheme or employer.
The situation becomes even more complex when the cost of corrections threatens the scheme itself. We’ve worked with schemes where paying what was owed would have meant insolvency, forcing trustees to ask members to choose between their individual entitlements and the scheme’s survival. In one case, even the sponsor’s business was in jeopardy – unable to afford the potential costs of rectifying benefits.
Three types of difficult conversation
Pension error communications generally fall into three categories, each with their own challenges.
- Underpayments might seem like positive news because members receive additional money, but they can still undermine confidence in the scheme’s administration. If you’ve been underpaying someone for twenty years, they naturally wonder what else you’ve got wrong.
- Overpayments create the most challenging conversations because you may be asking members to repay money they’ve received in good faith – and may have . The situation becomes particularly complex when corrections mean someone receives an increase while simultaneously being asked to repay historic overpayments.
- Existential threats require the most careful handling. How do you ask members to waive legitimate claims without seeming to threaten or manipulate them? The message essentially becomes: “You’re entitled to this money, but taking it will harm everyone in the scheme, including you.”
How members actually respond
With careful messaging, it’s possible to get surprising results. When one scheme we worked with asked members to waive money owed because paying it would threaten the scheme’s existence, 80% agreed to forgo what they were due. They understood the situation and chose collective benefit over individual gain.
But the challenge remains to repair the damage. Members wonder how they can have confidence in future payments when past ones were wrong, and this doubt lingers even when the immediate issue is resolved.
What works in error communications
Successful error communications share certain characteristics. They lead with what members need to know and do, rather than getting lost in historical detail or technical complexity. They acknowledge fault without overwhelming members with explanations of decades-old administrative processes.
When asking members to act against their apparent financial interests, it’s more important to be clear about consequences than make emotional appeals. One scheme we worked with had to explain that members would be better off staying in the scheme without the money than receiving what they were owed and watching the scheme collapse.
You can rebuild confidence by explaining how you’ll be running a tighter ship in the future. This means sharing concrete actions you’re taking, providing clear timelines for them, and maintaining regular communication throughout the process. Members need to see that you’re treating the situation seriously.
The broader implications
These individual cases consume disproportionate amounts of trustee time and attention. We know of trustees who are managing billions but who spend hours in meetings about single member cases, when they’d rather focus on strategic improvements that benefit all members.
Yet these cases matter beyond their individual impact because they shape perceptions of the entire scheme. How you handle errors signals to all members how seriously you take your responsibilities and whether you can be trusted with their retirement income.
Trustees also need to consider the value of high quality administrative work. While actuaries work in averages and acceptable margins of error, administrators must get every individual calculation exactly right. Many would say that this difference isn’t always reflected in how the industry values and resources administrators.
Building trust beyond the crisis
The most effective long-term response to historic errors isn’t perfect crisis communication but investment in administration that prevents future problems. Good ongoing service builds more trust than explanations of past mistakes ever could.
Members have a simple expectation: that you’ll pay their pension correctly. They don’t need to understand the complexity of DB administration or the challenges of historic record-keeping. From their perspective, you’re either meeting that basic expectation or you’re not.
This might seem unfair to those who understand the genuine complexity involved: “Pensions are complicated!” But member communications need to work from the member’s viewpoint, not the industry’s. The most successful schemes acknowledge this reality and communicate accordingly, focusing on what members need rather than what schemes might want them to understand.
Trustees who worry about these situations are right to do so, but they should also take comfort from the evidence that members can be more understanding than expected when approached with honesty and clarity. The key is resisting the urge to over-explain or hide behind complexity, and instead focusing on clear information and genuine choice.
Because ultimately, members don’t need to understand why errors happened. They need to trust that you’re fixing them and preventing new ones. Everything else is just detail that gets in the way of that simple truth.
