Readers of Money Marketing whose canines are longer than those of a tired old nag will no doubt remember how some of us equally long-toothed journalists were banging on about the misselling of personal pensions during the late 1980s and early 1990s.
Upwards of two million people were wrongly advised to either leave or transfer their defined benefit (DB) pensions and sink their money into money purchase schemes instead.
Putting things vaguely right cost the industry more than £12bn — a hugely expensive lesson for all concerned.
What was always clear, even then, was that a small but significant group of policyholders who had been missold pensions would still be left nursing heavy deficits in the value of their final retirement incomes.
Certain advisers haven’t changed their behaviour since their cowboy days of the 1980s and 1990s
This was either because they hadn’t twigged quickly enough that something had gone wrong with their pensions, or because compensation levels were too low. Sometimes both.
In other cases, policyholders were also let down by regulators and their proxies, who sat on their hands instead of acting to defend victims of misselling.
Huge no-no
Last month, I was contacted by someone in such a position. Bizarrely, his experience took place years after it should have been clear to any adviser that — bar the most exceptional cases — taking someone out of a final salary scheme was a huge no-no.
My contact is unable to take legal action because of the 15-year long stop
In this case, my contact was shunted out of a DB scheme and into a personal pension in 1999. Thereafter, he received only one review of his pension, in 2008, when the adviser said the new scheme was doing well.
Yet subsequent evidence uncovered by the policyholder last year found that, unbeknown to him, the adviser had written to the pension provider — Clerical Medical — in 2006 to ask if he could be taken out of his private scheme. Clearly, even the adviser was getting cold feet.
The adviser claimed he had given multiple warnings to his client before 2008. The client denied this and a Financial Ombudsman Service (FOS) investigation subsequently found no evidence of warnings having been given. And yes, the client did eventually go to the FOS in 2016, after being told by another adviser that the original advice to come out of his DB scheme had been wrong.
The firm eventually carried out a redress calculation but refused to share it with the client
It took the FOS three years to determine in favour of the complainant. It awarded the maximum compensation available at the time — £150,000 — while also recommending the adviser carry out a redress calculation and put the client back into the position he would have been in had the original advice not been given.
This recommendation was not binding on the adviser, who then refused. The firm also claimed it had not had DB transfer cover in place at the time the claim had been made.
Yet its company reports suggest it did have this cover; not unsurprisingly, as its main business was that of DB transfers.
Clearly, even the adviser was getting cold feet
The client has complained to the Financial Conduct Authority and the regulator believes the firm was covered at the time.
After huge time wasting, the firm eventually carried out a redress calculation but refused to share it with the client. Despite being told by the Information Commissioner there was no reason to not do so, it continues to refuse.
My contact hired his own actuary, who estimates the total redress cost to be more than £700,000.
This was years after it should have been clear to any adviser that taking someone out of a final salary scheme was a huge no-no
Last year, the firm in question was acquired by a large PLC in a multimillion-pound deal. The PLC has now told my contact that “everything that was required legally had been done”.
My contact is unable to take legal action because of the 15-year long stop.
Despite FOS compensation levels now having been increased to £375,000, that avenue too is closed to him because his complaint was brought before April last year and the adviser’s ‘acts or omissions’ took place before April 2019.
Support for both sides
I know that, reading this, a few advisers will sympathise with the client. Many more, probably, will identify with the adviser.
Putting things vaguely right cost the industry more than £12bn — a hugely expensive lesson for all concerned
The moral of this story is that actions from as far back as two decades ago can have massive consequences for clients today.
And some advisers really haven’t changed since their cowboy days of the 1980s and 1990s.
Nic Cicutti can be contacted at nic@inspiredmoney.co.uk
This article featured in the May 2023 edition of MM.
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