The issue arose when the insurer failed to deduct tax-free cash withdrawn by up to 7,000 income-drawdown customers. This resulted in Aegon systematically overestimating the value of their pension funds by as much as 25 per cent.
The error was first detected in 2000 although the insurer is investigating whether it dates back to when it began selling the product in 1995.
The blunder may see customers hit with an unauthorised withdrawal charge of between 55 and 75 per cent, as those who believed they were taking the maximum income allowed by the Government Actuary’s Department will have actually been exceeding the limits.
An Aegon spokesman says: “We will contact HMRC to say this was our error and to confirm that these people did not intentionally exceed GAD limits. We will be covering any costs that arise.”
Hargreaves Lansdown head of pensions research Tom McPhail says: “It is important Aegon has confirmed it will pick up the tab if there is an unauthorised withdrawal charge. We have to wait and see what floats back on the tide now to determine how many people have been affected.”
He adds: “I would be very interested to see what the FSA thinks about this as I believe there are issues here around conduct of business rules and communicating with your customers. Quite why it has taken this long to let people know, I do not know.”
Aside from the GAD issue, Aegon does not feel there will be grounds for compensation as the error has not caused financial loss. However, it adds it will consider complaints on a case-by-case basis.