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ombudsman news

issue 11

November 2001

a selection of recent cases- illustrating the wide range of complaints dealt with by the investment division


After reviewing Mr J's pension mis-selling complaint, the firm accepted that he had lost out as a result of its advice to transfer from an occupational pension scheme. It was only after Mr J had accepted the firm's offer of redress that the firm realised it had made an error in its calculations. It had offered significantly more than the amount it was required to provide.

The firm then sent Mr J a revised offer for a much lower amount, which was correctly calculated in accordance with the regulator's guidance. Mr J brought the matter to us.

We upheld his complaint, referring the firm to the regulator's guidance which said that once a customer has accepted an offer, even if the firm's incorrect calculation resulted in the offer being larger than it should have been, no alteration should be made. The firm accepted the position and honoured its original offer.


Mrs E complained about pension mis-selling. The firm accepted that her complaint was justified and proceeded to calculate redress. However, it was unable to obtain full information about her occupational pension scheme. It therefore had to base its calculations on certain assumptions, as laid down by the guidance. Mrs E rejected the offer and referred the complaint to us.

It is rare in such cases that we are able to obtain missing information, but we did so in this instance. We were therefore able to obtain a re-calculation of redress using the details of Mrs E's occupational pension scheme. This showed that the redress required was significantly lower than that calculated using the assumptions.

We could not order the firm to honour its original offer since Mrs E had rejected it. The second, more specific loss assessment had been conducted in accordance with the pension review guidance, so it met the regulatory requirements. Mrs E was left with the choice of accepting the lower amount of redress or taking legal action against the firm.


The firm accepted that it had mis-sold a personal pension to Mrs H and proceeded to put things right, in accordance with the guidance. However, when it was arranging to reinstate her into her occupational scheme, the firm found she had paid a lower level of contributions to her personal pension than she would have paid into her occupational scheme over the same period. It therefore required her to make up the difference, so that she could be fully reinstated into her old scheme.

Mrs H considered this unfair and referred the complaint to us. We rejected the complaint. The firm had correctly followed the guidance, which allowed it to take into account the saving Mrs H had made when it assessed her loss. Moreover, our Terms of Reference prevent us from making any alternative award unless we consider that the guidance does not address the circumstances of a particular case.


Mr and Mrs E bought their house in 1992 as part of a shared ownership scheme. They took out a mortgage endowment policy with the aim of repaying the mortgage and providing some capital to help them buy the remaining share of the property.

In 2000, the couple received a "re-projection" letter stating that the policy was likely to produce a shortfall and asking them to increase their premiums by 46% to get the policy back on track. They decided not to increase their premiums and the firm told them that the policy could no longer be certain to provide sufficient funds to repay the mortgage.

Mr and Mrs E considered this to be a breach of contract. They complained, initially to the firm and then to us, about the unsuitability of the policy. They considered that the firm had taken away the policy's "guarantee". They also held the firm liable for the fact that, when they were deciding whether they could afford to pay the increased premium, they had cancelled a critical illness policy costing £40.00 per month. The deterioration in Mr E's health since he took out the original policy meant that he would not be able to obtain further critical illness cover.

There was no record of the discussion that took place with Mr and Mrs E at the time of the sale. The literature they were given did not imply that the policy benefits were guaranteed, but we upheld their complaint on the basis that the policy was not compatible with the couple's attitude to risk.

As we upheld the complaint and the firm accepted that the policy was unsuitable, there was no need for us to investigate the complaint about the removal of the plan "guarantee". We did not accept that there was any liability on the part of the firm for the couple's cancellation of the existing critical illness policy.

When looking at the question of redress, we found that if Mr and Mrs E had taken out a repayment mortgage, they would have repaid £5,180 at the date of our calculation. The current surrender value of the policy was £617 higher than this figure, so they had made a gain of £617. However, the endowment mortgage was £4,375 more expensive than the repayment mortgage over the same period. The total compensation was therefore £3,758. The firm also agreed to pay the administration fee charged by Mr and Mrs E's lender to convert the mortgage to a repayment basis.


Mr and Mrs M's complaint concerned the whole of life policy they took out in 1991. They felt their adviser was guilty of misrepresentation. Their understanding had been that they were taking out an endowment, not a whole of life policy.

We found no evidence of misrepresentation. All available documentation and brochures clearly described the whole of life policy and stated that its main purpose was family protection.

The firm had cited the fact that one of the couple's priorities, as noted on the "fact find" at the time of sale, was family protection. Mr and Mrs M sent us a copy of the "fact find", which referred to investing a lump sum and family protection but did not mention whole of life protection. However, the firm's copy of the "fact find" included a reference to the whole of life plan.

The firm agreed with us that the differences between the two copies of the "fact find" cast doubt over the sale. It agreed to rescind the contract, return the premiums, with interest, and pay £200 for the distress and inconvenience caused.


In March 2000 a first time investor, Mrs G, paid £4000 into an Individual Savings Account (ISA). She did not receive any advice before making this investment. Her money was invested in the firm's technology and European unit trusts.

A month later, after the technology investments experienced an unusually high level of volatility, the firm sent investors a "Market Update" letter, with a question and answer sheet. In October of the same year, Mrs G decided to cash in her investment and suffered a loss of approximately £1,400. She then made a complaint to the firm, which was eventually referred to us.

Mrs G asserted that the firm's "Market Update" letter had encouraged her to hold on this investment against her better judgement and she claimed that the letter's contents amounted to investment advice. In our view, the letter sought to remind investors of the volatility and long-term nature of investments of this kind. It referred positively to the long-term outlook for technology investments in general and for this fund in particular. The letter did not give Mrs G any recommendation to increase, reduce or hold on to her investment and did not constitute investment advice. We did not uphold the complaint.


While she was clearing out some papers after her mother's death, Mrs C found a policy document for a life assurance policy her mother had taken out in 1965 for a premium of 10 pence (pre-decimal) per week. Mrs C made a claim on the policy for £37-4s-0d.

The firm refused to pay out, claiming that the policy had lapsed in 1983 with arrears of £1.40. The policy did not appear on the firm 's live records, indicating that it had no current value. However, as a gesture of goodwill, the firm offered Mrs C £10. She rejected this sum and referred the complaint to us. After we told her that the offer was reasonable in the circumstances, since she had no proof that the premiums had been paid to date, she accepted it.

We have recently established an assessment team to deal with complaints where we think there is a good chance of achieving a swift resolution by means of mediation rather than by a full investigation. The next two case studies were among those resolved by the assessment team.


Mrs I complained to the firm after receiving its letter telling her that her mortgage endowment policy was likely to produce less than she needed to pay off her mortgage. She claimed the adviser had not warned her that the policy involved any risk.

The firm upheld her complaint. At this stage, the regulatory guidance - RU89 - had not been issued and the firm offered Mrs I the higher of a refund of the premiums she had paid, plus interest, or the sum she would have repaid on a repayment mortgage. Mrs I rejected the firm's offer on the grounds that it was not enough to address the shortfall. She wanted compensation equal to the shortfall, or for the firm to pay the increase in premiums necessary to place the policy back on target.

By the time the case had been referred to us, the regulator had issued RU89. We examined the firm's offer to check whether it was significantly different to any potential redress that might have been available under the regulator's guidelines. We concluded that there was no significant difference and, having confirmed that the offer was still available, we telephoned Mrs I.

A lengthy and difficult conversation ensued. We explained all aspects of the case in detail, including the fact that the policy documentation made it clear that there was no guarantee as to the amount the policy would produce at the end of its term. However, Mrs I refused to accept that the firm's offer was fair and reasonable and she insisted that the firm should guarantee to repay her mortgage.

Unable to conclude the call satisfactorily, we finally suggested that we would send Mrs I written confirmation of the points we had discussed with her, together with our view on why we could not uphold her complaint.

Mrs I subsequently decided to accept the firm's offer and agreed settlement with the firm direct. The firm then asked us to refund their case fee on the grounds that we had "not investigated the complaint". We pointed out to the firm that it had no grounds for requesting a refund. Once the case had been referred to our assessment team, it was assessed, mediation took place and a mutually acceptable outcome was reached, all within 10 working days.


In June 1995, Mr T was advised to take out a mortgage endowment policy. After becoming aware recently that the plan was predicted to produce a shortfall, acting on his own initiative Mr T converted his mortgage to a repayment basis and surrendered his endowment policy. Only then did he complain to the firm.

The firm offered to pay him a refund of all the premiums he had paid to the endowment policy, plus interest, less the surrender value he received when he cashed in the policy. Mr T felt that the company should provide a higher amount of compensation because he had to take out the repayment mortgage over 25 years, with higher costs.

When the complaint was referred to us, we found the endowment policy had been suitable for Mr T in terms of his attitude to risk. However, the policy had been mis-sold because it had not been set up to provide a large enough sum assured to repay the mortgage loan in the event of Mr T's death.

Mr T had already surrendered the policy and converted his mortgage to a repayment basis. Reconstructing the mortgage in this way is normally the most favoured form of redress, but it was clearly not relevant here. We therefore concluded that a suitable form of redress would be to refund Mr T's premiums, plus interest, less the surrender value - the form of redress that the firm had already offered.

Mr T rejected this. We telephoned him to explain the issues involved and talk through his concerns. Eventually, he accepted the firm's offer of redress was a fair and reasonable one and equalled the maximum an Ombudsman was likely to award, if he decided to reject our initial assessment of the case and ask for it to be passed on to an Ombudsman.

Walter Merricks, chief ombudsman

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.