skip tocontent

annual review 1 April 2004 to 31 March 2005 - what the complaints were about

new cases by financial product

year ended 31 March 2005

year ended 31 March 2004

mortgage endowments



other "packaged" investment products including complaints about



single-premium investment bonds (including "precipice" bonds)
investment ISAs
unit trusts


whole-of-life policies and non mortgage-linked endowments



personal pension plans including complaints about



personal pensions
purchased life annuities
small self-administered schemes and executive pension plans
income drawdown
guaranteed annuity contracts
stakeholder pensions

mortgage loans



motor insurance



current accounts



buildings insurance



credit cards



travel insurance



savings and deposit accounts including complaints about



cash ISAs
re-discovered passbooks and dormant accounts

contents insurance



other lending including complaints about



unsecured loans
second charges
home income plans

other banking services including complaints about



cheque clearing
money transfer
cash machines
safe custody

income protection insurance



other types of general insurance including complaints about



commercial policies
pet insurance
caravan insurance

loan protection insurance



"splits" and "zeros" (in relation to investment trust companies)



critical illness insurance



portfolio and fund management



free-standing additional voluntary contribution (FSAVC) schemes






extended warranty insurance



private medical insurance



legal expenses insurance



personal accident insurance



derivatives including complaints about




total number of new cases



Given the very wide-ranging nature of the disputes we handle - from pet insurance to spread-betting - we have not included individual case studies in this annual review. The limited space in this publication means we could not give a fair and representative overview of all aspects of our work.

However, we include case studies in our regular newsletter, ombudsman news, which gives regular feedback on changing complaints trends, as well as commentary and briefing on our approach to different types of dispute. We hope that firms, in particular, find ombudsman news a helpful source of reference - and that they will take its contents into account when considering how to handle complaints. Subscription to ombudsman news is free of charge. (Please email us at, to join our mailing list.) All issues of ombudsman news are also available on this website.

We highlight below the issues behind the key areas of complaint during the year.

mortgage endowment complaints

pie chart

mortgage endowment complaints
all other complaints

During the year we continued to face the practical challenge of dealing with ever-higher volumes of new mortgage endowment complaints. We received 69,737 new mortgage endowment cases - a 34% increase on the previous year, and two thirds of our total workload. We expect - and are geared up for - similarly high levels of mortgage endowment complaints throughout 2005/06.

Increasingly, however, the time limit rules will have an impact on the number of new mortgage endowment complaints that the ombudsman service is able to look into. In June 2004 the Financial Services Authority (FSA) amended these rules, so that firms must now explicitly warn mortgage endowment customers that there is a “final date” for making a complaint - and that once this final date has passed, the consumer will be too late to complain because their complaint becomes “time-barred”. We gave a full explanation of these rule changes in issue 40 of ombudsman news.

In January 2005 the FSA wrote to the chief executives of larger mortgage endowment firms, giving them the feedback that we had passed to the FSA on how firms were dealing with complaints - and reminding firms of the requirement to handle complaints fairly and properly. Following an earlier letter that the FSA had sent firms in April 2002 about mortgage endowment complaints handling, the FSA acknowledged that some progress had been made in some areas. But it stressed the importance of ensuring that all firms handled mortgage endowment complaints in a way that put matters right for those who had been mis-sold. We continue to liaise closely with the FSA on these matters, as the quality of complaints handling by firms has a significant direct impact on our workload.

Over the year some firms continued to raise questions about how the ombudsman service assesses what a consumer’s “attitude to risk” was at the time the mortgage endowment policy was sold - usually a number of years previously. In issue 44 of ombudsman news we set out our approach, explaining that - when we assess a complaint - we take into account the customer’s overall circumstances at the time of sale. We do not rely solely on one piece of evidence to do this. This means that where a box has been ticked on a “fact find” (a document completed at the time of the sale) to note the customer’s attitude to risk, we view this information as a useful, but often inconclusive, indication of what the customer’s attitude to risk might have been.

About 12% of all mortgage endowment complaints are now referred to us on behalf of consumers by third-party claims management companies (sometimes referred to as “no win, no fee” agencies). The outcome in these cases appears no different from the outcome in cases that consumers bring direct to the ombudsman service themselves. In other words, we are no more or less likely to uphold a complaint referred to us through a claims management company. Typically, these companies charge between 25% and 50% of any compensation that is awarded. We make clear to consumers that no one should need the help of a third-party company to bring a complaint to the ombudsman service. And we make no additional awards against financial firms to cover the charges of any claims management company involved. So any such charges have the effect of reducing the amount of any compensation awarded to the consumer to reduce their mortgage debt.

In March 2005 we invited the main claims management companies operating in this area to a seminar that we hosted. The purpose was to discuss our processes and procedures, and to explain our general approach to investigating and resolving complaints about mortgage endowments. We acknowledged that our procedures are designed for the individual consumer, and not to accommodate “bulk” complaints through claims management companies - and we explored the challenges this creates for both sides, and the need for complaint handlers to adopt good practice. We expect to continue this dialogue over the coming year - and to take part in the wider debate about the need for regulation of claims management companies in the financial services sector.

single-premium investment bonds

pie chart

complaints about single-premium investment bonds (including “precipice bonds”)
other investment-related complaints (apart from mortgage endowments)

As we anticipated in our annual plan & budget forecasts, during the year we saw a gradual decline in the number of complaints we received about “structured retail products” - so-called “precipice bonds”. Out of a total of 6,281 new complaints about single-premium investment bonds, we received 1,914 cases involving “precipice bonds”. This decrease is probably attributable to a tightening of regulatory requirements since these products were first sold, and a change in the design of many structured products to contain a capital guarantee. The complaints we received largely concerned the suitability of the bond for the consumer - where the consumer received advice to take out the investment. If the consumer bought the bond as a result of a financial promotion by direct mail, we have looked at how accurately the risk inherent in the product was described.

The number of complaints about other types of single-premium investment bonds has increased during the year - especially complaints about with-profits bonds. Poor stock market conditions have resulted in many firms applying market value adjusters (MVAs) to their funds. These mean that if the bond is cashed in during its term (rather than waiting for maturity or a death claim) the return will be reduced - often by a substantial amount. This is designed to protect the underlying assets of the fund - effectively to make sure that a customer who is leaving the fund early is not taking more than their fair share.

The possibility of an MVA is a key piece of information for consumers deciding whether to take out one of these products - especially if they are not sure how long they want to invest for. Consumers often tell us that they would have made alternative arrangements if they had been aware that an MVA was a real possibility. The facts of each individual case are central to our assessment of these disputes. In some cases we conclude that the documentation made the matter clear - and that the consumer was (or should have been) aware of the implications of this feature of the product. However, in other cases we may consider that the matter was not brought effectively to the consumer’s attention - especially if an MVA is actually already applying to the fund at the time of the sale, and the consumer had not been aware of this. If we are satisfied that the consumer would not have made the investment in these circumstances, we are likely to uphold the complaint.

complaints about whole-of-life policies

pie chart

complaints about whole-of-life policies
other investment-related complaints (apart from mortgage endowments)

The complaints about whole-of-life policies that we received during the year fall into two distinct groups. Some consumers complained that their policy should never have been sold to them in the first place, because it was inappropriate for them. Others accepted that they needed such a policy but are unhappy that the premium is reviewable every few years. These reviews can cause very large increases in the premium payable.

For the first type of complaint, we look carefully at the individual customer’s circumstances at the time of the sale of the policy. These policies may be suitable for inheritance tax planning or funeral expenses cover. But they are not generally suitable for providing life cover for mortgages or other loans, because there are normally more cost-effective alternatives.

Disputes about the reviewable nature of the premium tend to centre on the clarity of the explanation and documentation at the time the policy was sold. If the sales process and documents are clear in mentioning the review, we will not usually uphold the complaint. But if they are not, we may ask the firm to adjust the policy or premium in some way.

personal pension complaints

pie chart

personal pension complaints
other investment-related complaints (apart from mortgage endowments)

Pensions continue to represent a significant part of our workload, although the number of complaints referred to us about personal pensions has been declining for the last two years. Most complaints about the administration of pensions are dealt with by the Pensions Ombudsman - separate from the Financial Ombudsman Service. This means that the majority of the complaints we receive are about advice given in relation to pensions. Some of the personal pension complaints we deal with still relate to the industry-wide Pension Review instigated by the regulator in the mid 1990s. These cases include a decreasing number of complaints from people who say they were never invited by the firm involved to have their case looked at as part of the Pensions Review.

We continue to receive complaints about advice in connection with income drawdown arrangements. The complaint is usually that the risk associated with such arrangements was not explained, with the consumer saying that they would have been better off with an annuity - even with declining annuity rates. Where we uphold this type of complaint, the redress necessary to put matters right is generally complex.

complaints about mortgage loans

pie chart

complaints about mortgage loans
other banking-related complaints

We still receive complaints about early repayment charges on mortgages, but the decrease in the number of these cases - that we identified in last year’s annual review - has continued this year. The calculations for some early repayment charges are complex, and we are often asked by the consumer to check the lender’s calculations - which are not always correct.

Shared appreciation mortgages, which many predicted would prove a growing area of concern, particularly among the elderly, have not been a significant part of our work this year.

We are seeing more complaints about “offset” mortgages - where the customer’s borrowing and saving accounts are linked for purposes of calculating interest. These mortgages can be difficult for borrowers to understand and for lenders to administer, and putting mistakes right may require complicated account re-workings.

motor insurance complaints

pie chart


motor insurance complaints
other general insurance complaints

The 6% fall in the number of motor insurance complaints that we received during the year is welcome and may reflect, in part, the fact that the insurance sector now generally has a good understanding of the approach we are likely to adopt on many issues relating to motor policies. The size of this "mature" market is such that minor variations in the proportion of dissatisfied customers can have a material effect on the volume of complaints that we are asked to resolve.

The areas that dominate our workload remain the same as in previous years - disputes about repairs, valuations and the exclusion of liability for breaches of security (in particular, the strict application of an exclusion of liability for theft when the keys are left in a car). We believe it is of central importance that consumers should be able to understand what cover they are receiving - and which exclusions and limitations apply - particularly since, increasingly, the application process is carried out over the phone or internet.

complaints about current accounts

pie chart

complaints about current accounts
other banking-related complaints

A large proportion of the complaints that we received during the year about current accounts related to account errors and poor administration. There was a core of complaints about charges - often where the customer was already experiencing financial difficulty - and this was compounded by charges. The consumers in these cases clearly perceived some charges (for example, the charge for bouncing a small direct debit) as a form of punishment - and out of proportion to the work involved for the bank or building society.

Some of the complaints we received show that technical matters - such as cheque clearance and the operation of direct debits - are still misunderstood by many customers (and by some bank and building society employees).

On a more positive note, we received very few complaints this year from customers who had experienced difficulty switching between account providers.

complaints about buildings and contents insurance

pie chart

complaints about contents insurance
complaints about buildings insurance
other general insurance complaints

The 2.5% increase in complaints to the ombudsman service about buildings and contents insurance reflects the steady growth in this well-established market. We continue to receive a wide range of complaints about the handling of claims by insurers - as well as disputes where claims were rejected.

Insurers’ handling of subsidence and building repairs, which can be complex and lengthy, gave rise to a significant proportion of complaints during the year. We also regularly dealt with disputes over what caused the damage that led to consumers making claims on their policies. Exclusions of liability for "fair wear and tear" and "gradually operating processes" continue to cause concern to consumers, who may view sudden and unexpected serious damage to their home as exactly what they have insurance for - while insurers may regard the same event as the result of an inevitable long-term process that should have been foreseen.

credit card complaints

pie chart

credit card complaints
other banking-related complaints

A significant issue in relation to credit card disputes during the year was the High Court decision on whether section 75 of the Consumer Credit Act 1974 applies to credit transactions made abroad. This is the section under which, in certain circumstances, the provider of credit is jointly liable with the provider of goods or services where there is a misrepresentation or breach of contract.

The High Court decided that, generally, section 75 did not apply to foreign transactions. However, the Office of Fair Trading has said that it will appeal the decision. Pending the outcome of any appeal, most card issuers are continuing to accept liability for foreign transactions up to the amount of the credit provided. This therefore continues to represent good industry practice - which we take into account when deciding individual disputes.

During the year we have continued to see an increase in disputes about so-called “first party” fraud. These are cases involving disputed credit card transactions, where the card issuer claims that the card holder is implicated in the fraud.

travel insurance complaints

pie chart

travel insurance complaints
other general insurance complaints

The number of travel insurance complaints we received increased by 5% during the year - following a 33% rise in the previous year. We hope that this steadier rate of increase indicates that some travel insurers are starting to address the main causes of complaints.

A number of the disputes that are referred to us again relate to the exclusion that insurers apply to claims involving "pre-existing medical conditions". More insurers now appear to use declarations (sometimes referred to as "general/medical warranties") agreed by the consumer at the point of sale. The aim is to ensure that people are aware of the need to declare any such medical conditions. This generally appears to have helped consumers better understand the pre-existing medical conditions exclusion. However, where a customer subsequently makes a claim on a policy, it may also have led to some staff at travel insurers becoming confused between the insurer’s right to "avoid" (retrospectively cancel) a policy as a result of the customer’s non-disclosure or misrepresentation and the insurer’s right to rely on the exclusion relating to pre-existing medical conditions, and on the general/medical warranty agreed by the consumer.

We also see a wide range of disputes about other travel insurance issues - often relating to the clarity of the wording of policies. The FSA’s new rules for insurers, that came into force in January 2005, should help reduce the number of these complaints. The rules require policy summaries and wordings that are clear, fair and not misleading.

complaints about savings and deposit accounts

pie chart


complaints about savings and deposit accounts
other banking-related complaints

We continue to receive complaints about "unfair" interest rates. The new Banking Code came into effect in March 2005 and we are disappointed that it did not reflect our recommendation that (except where the balance on the account is very small) customers should receive personal notification of changes in interest rates on savings accounts. We believe there is still potential for complaints here. Delay and errors by providers of cash ISAs (individual savings accounts) - particularly around the end of the tax year - gave rise to an increased number of complaints. Consumers often felt that their provider did not have adequate administrative resources to deal with the year-end rush.

We have also received complaints during the year about a type of savings product commonly called a "guaranteed capital bond". With these products, interest is calculated at the end of the bond’s term, but the interest rate depends on the movement of a specified investment index. So if the investment index performs badly over the term of the bond, the customer may get no interest at all - although the invested capital is guaranteed to be returned in full. Consumers who complained to us about these products found these interest arrangements difficult to understand - and many said they had thought the interest was also "guaranteed".

complaints about loans other than mortgages

pie chart

complaints about loans other than mortgages
other banking-related complaints other general insurance complaints

A significant proportion of the complaints we received during the year about loans other than mortgages related to financial difficulties faced by consumers. The consumers involved frequently complained that their lender had failed to give sufficient consideration to their financial difficulties when trying to recover a loan debt.

Increasingly, consumers say that the loan was unaffordable at the outset - particularly where it was a consolidation of an existing loan and overdraft. There have been complaints of lenders repeatedly consolidating debts without making any real assessment of the customers’ ability to meet the repayments. We mentioned this trend in our last annual review - and it appears to be growing.

"splits" and "zeros"

We received fewer than half the number of complaints about “splits” and “zeros” - split capital investment trust companies and zero dividend shares - that we received in the previous year (1,673 in 2003/04 and 729 in 2004/05). By 31 March 2005 we had received a total of around 5,500 “splits” and “zeros” cases since the first complaints of this type were referred to us in 2002/03. Around 3,400 of these cases had been closed by 31 March 2005. Disputes involving "splits" and "zeros" remain among the most complex that we deal with. The vigorous and extensive representations made by firms in cases where we are minded to uphold the complaint have made progress slower than we would have liked. The "lead" cases are particularly complex and strongly contested by the parties involved. These are cases where we aim to resolve key general principles by focusing on a single case that is broadly similar to many others. In December 2004 the FSA announced that a number of "splits" firms had agreed to contribute to a "Distribution Fund" for certain eligible "zeros" investors. This is an arrangement entirely separate from the Financial Ombudsman Service, with its own terms and conditions for eligibility. The existence of the Distribution Fund will affect our work, as investors who have already lodged complaints with us and who apply to the Distribution Fund - administered by Fund Distribution Limited - must ask us to suspend our investigations while their applications are made and offers considered. During the year we published our approach to dealing with "splits" complaints involving intermediary firms. In developing our approach in this area, we carried out detailed analysis of over 3,000 component investments held in "splits" - providing a sound and consistent foundation to our adjudicators’ investigations.

Equitable Life

Our work continued during the year on complaints we have received alleging mis-selling and maladministration by Equitable Life. The majority of these complaints are linked to “lead” cases - where we focus on a handful of apparently typical complaints to establish the key general principles that are then likely to apply to other similar cases.

In July 2004, the ombudsman made provisional decisions on two "lead" cases - following earlier adjudications and initial views on the cases. These cases involved disputes about what people were (or were not) told - when they took out Equitable Life policies between September 1998 and July 2000 - about the potential costs that Equitable Life was facing in relation to policies with guaranteed annuity rates (so-called "GAR" policies).

Having considered a significant number of detailed comments and representations in response to the provisional decisions, the chief ombudsman issued his final decision on one of these GAR-related "lead" cases in March 2005 - upholding the complaint of the consumer in question. The chief ombudsman’s 79-page decision (and a separate 10-page summary of it) are available on this website - from the index of documents relating to Equitable Life complaints. We have continued to update our frequently-asked questions (FAQs) on Equitable throughout the year, so that people can check developments and progress. Now that this GAR-related "lead" case has been decided, and the key general principles established, work can start on all the linked "follow-on" complaints where we believe the circumstances involved are similar.

In March 2005 the chief ombudsman also issued his decision on whether to investigate around 50 complaints that we had received about Equitable Life - relating to certain new information (for example, on alleged "over-bonusing") that came to light in Lord Penrose’s report into Equitable Life, published in March 2004. Having considered representations made by a number of different parties - including Equitable itself - the chief ombudsman concluded that, in the circumstances, he should exercise his discretion to decline to investigate these complaints further. The detailed reasoning for this decision is set out in a document also available from the index of documents relating to Equitable Life complaints on this website.

useful links