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ombudsman news

issue 33

November 2003

pension mis-selling complaints made after the end of the personal pension review

It is getting on for ten years since the regulators ordered firms to review the personal pensions they had sold between 29 April 1988 and 30 June 1994. Where the review found that the firm had mis-sold the policy and that the customer would have been better off staying in - or joining - an occupational pension scheme, then the firm had to make redress. This was intended, as far as possible, to put the customer back in the position they would have been in if the firm had not advised them to take out a personal pension.

The review started at the end of 1994 and firms were required to include some cases in the review automatically and to start checking them right away. These cases included people in higher priority groups - such as those who had already retired. Firms were required to write to the remainder of the customers who were eligible for the review, explaining that they could ask to have their cases looked at. Customers who wanted to be included in the review had to apply by 31 March 2000.

Customers who missed this deadline but who believe they have been mis-sold a personal pension are still able to make a complaint to the firm in the normal way, although in some cases time limits may apply.

The following case studies illustrate some of the issues that can arise with personal pension complaints made after the end of the pension review.

case studies - pension mis-selling complaints

33/5
firm makes offer of redress that differs from regulatory guidance

In 1990, the firm advised Mrs M to opt-out of her occupational pension scheme and to take out a personal pension instead. Mrs M did not ask to have her complaint looked at until after the deadline for the pension review had already expired.

When it received Mrs M's complaint, the firm agreed to assess her loss. However, it said it would not do this in accordance with the regulatory guidance for pension review cases. Instead, it offered her a lump sum, calculated by using the Ogden Tables. These are actuarial tables used to assess the amount of lump sum compensation that would be suitable to cover future loss, such as the cost of care in a personal injury claim. Unhappy with the firm's handling of the matter, Mrs M complained to us.

complaint upheld
In accordance with regulatory guidance, redress is intended to place investors in the position that they would have been in if the firm had given them suitable advice in the first instance. In cases such as this, the customer should be reinstated in their occupational pension scheme, if this is possible.

The firm's proposed use of the Ogden Tables was inappropriate. We required it to assess Mrs M's loss in accordance with the regulatory guidance, and to arrange for her to be reinstated in her company scheme if the company scheme agreed to this. The firm thought that this form of redress might incur a tax liability. We doubted that this was so, but we told the firm that it, rather than Mrs M, would be responsible for any tax liability that might arise as a result of this reinstatement.

33/6
firm claims that client insisted on transfer, even though this went against the firm's advice

In 1991, Mr K was advised by the firm to transfer from his occupational pension scheme to a personal pension. The firm rejected his subsequent complaint about the unsuitability of this advice. It said he must have been aware of the possible disadvantages of transferring because, on the bottom of the "fact find" that it had prepared and given to him, there was a signed handwritten statement saying: "I have had the figures explained to me and I appreciate on this basis it may not be best advice to transfer".

Mr K then complained to us.

complaint upheld
We did not consider that the firm's advice had been suitable. In order to match the benefits that Mr K would have received if he had stayed in his occupational scheme, a personal pension would need a growth rate of 13 percent per year. Such a rate of growth could only be obtained with an investment that carried a higher risk than would be appropriate for Mr K's circumstances. The firm itself had noted that he was prepared to accept only a medium level of risk.

The firm suggested that Mr K had specifically requested the transfer because he had concerns about the way in which his occupational scheme was run. However, we saw no evidence that Mr K had been so concerned that he was prepared to transfer, regardless of the consequences. If Mr K had wished the firm to carry out the transfer, even though this might not be to his advantage, then the firm should have set out, in writing, what the disadvantages might be. It should then have ensured that it obtained his written confirmation that he still wished to proceed.

Mr K accepted that he had signed the "fact find", but he denied that he had written or signed the added handwritten statement. From the relative positioning of the statement and signature, it appeared entirely plausible that the statement had been added to the document after Mr K had signed it.

We required the firm to make redress in accordance with regulatory guidance for pension review mis-sales.

33/7
firm excluded customer from pension review - whether customer was eligible to join an occupational scheme

Mr L complained that the firm had wrongly excluded him from the pension review. It had told him he was not eligible for the review because, at the time it had advised him, joining an occupational scheme had not been an option for him. However, Mr L insisted he had been entitled to join a company scheme at the time.

The firm rejected the complaint, refuting Mr L's assertion about his entitlement to join his employer's scheme. It said that the trustees of that scheme had confirmed at the time of the advice that Mr L was not eligible to join.

Mr L then brought his complaint to us. He sent us a letter signed by the manager of the company where he worked. This suggested that Mr L had indeed been eligible to join the occupational pension scheme at the relevant time.

complaint rejected
As part of our investigation, we contacted the managing trustee of the occupational scheme. He told us, in no uncertain terms, that Mr L had not been entitled to join the scheme. He said that the trustees were considering taking disciplinary action against the manager who had written the letter, since he had no authority to speak on behalf of the trustees.

We rejected the complaint.

Walter Merricks, chief ombudsman

ombudsman news issue 33 [PDF format]

ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.