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

08/11
A schoolteacher, Mr B, attended a meeting about pensions held at the school where he worked. A representative of a life company spoke at the meeting and recommended that Mr B should start investing in a free-standing additional voluntary contribution (FSAVC) policy.

Four years later, Mr B took early retirement due to stress. He claimed that the representative had been negligent in not recommending a policy such as critical illness cover that would pay him a lump sum if he had to retire early. Mr B’s bank manager had told him of someone in a similar situation who had received a £20,000 payout from such a policy. Mr B therefore claimed this sum as compensation from the life company.

We considered that the loss claimed had not been foreseeable at the time Mr B met the representative. The firm said that, in any event, it did not sell any policies that would have paid out a lump sum if the policyholder took ill-health retirement due to stress. The evidence indicated that the meeting had not been a comprehensive review of all Mr B’s financial needs, purely a discussion about pension planning. However, it did seem that the FSAVC had been mis-sold.

The firm agreed to provide Mr B with an annuity equal to that which he would have obtained if he had paid into his employer’s AVC instead of the FSAVC. It also agreed to pay him £500 for distress and inconvenience. However, Mr B would not accept this offer in full and final settlement of his claim. He felt that as the firm accepted that it did not give ‘best advice’, then his whole complaint should succeed. In his view, the representative should have followed up the initial advice by providing a review of all of his needs, and if necessary, should have referred him to another provider.

We pointed out that there was no regulatory requirement in such circumstances for a firm automatically to carry out follow-up reviews. Mr B had not raised any concerns with the representative about any other financial needs. However, he considered that it was self-evident that, since he was a teacher, he was likely to retire early through ill health. We did not agree that this was something that the representative could reasonably have foreseen.

We did not uphold Mr B’s claim for £20,000 and he accepted our recommendation that he should accept the firm’s offer in full and final settlement of the complaint.

............................................................................

08/12
A young married couple, Mr and Mrs J, aged 23 and 24, were advised by a firm’s representative to each start making regular payments into their own personal pension plans. At the time of the advice, the couple had been running their own business for nine months. Mr and Mrs J paid the monthly premiums into their respective policies for less than a year before deciding they could no longer afford to keep up the payments. Their new business took all their available capital and they had been forced to borrow money from relatives to keep the business running.

They complained that the pension plans had been mis-sold, since they were unaffordable from the outset. The ‘fact find’ completed by the adviser confirmed that the couple’s business had only been running for a short period. It also stated that their net relevant earnings from their business were £7,500 pa each. The adviser had recommended monthly premiums that represented 12% of each individual’s yearly income. After the dispute had been brought to us, Mr and Mrs J’s accountants confirmed that the couple’s actual earnings were significantly lower than those recorded on the ‘fact find’.

Our initial assessment was that the adviser had not obtained sufficient information about the couple’s business to be confident they could afford the proposed level of contributions. The firm rejected this assessment, so the case was passed to one of our investment ombudsmen for a final decision.

This decision upheld the view expressed in the assessment. The ombudsman pointed out that it would have been prudent for the adviser to have considered whether Mr and Mrs J could afford the premiums in the medium to long term. He noted that since the adviser had not obtained any documentary evidence about the financial performance of the couple’s business, the adviser was not in a position to state that the policies were affordable. The award made was to refund the premiums paid, with interest, together with a payment of £250 for distress and inconvenience, in view of the couple’s difficulties in attempting to fund the premiums.

............................................................................

08/13
Mr N complained of negligence on the part of the firm that provided a personal pension policy to his late wife. He claimed that the firm had failed to process, before the end of the tax year, his wife’s application to make an additional pension contribution. Mrs N had been terminally ill at the time and her husband claimed that the firm did not act as speedily as it should have done, given the obvious urgency of the situation.

The firm’s representative said that it had only been in the week of Mrs N’s death, and after the application form had been completed, that he became aware of her terminal illness. With this newly acquired knowledge, and with only seven days before the end of the tax year, he checked whether the application could still proceed. The firm confirmed that it could. However, it considered it should point out that the early payment of benefits under the policy, on Mrs N’s death, could mean that the charges the firm levied on this contribution would not be recovered. The pension fund could also have dipped in value, thereby further reducing the value of this contribution to the pension plan.

The representative did not contact Mr N until Friday 31 March. Mr N then confirmed he was happy to accept the potential losses in view of the tax relief to be received on payment of the contribution. However, Mrs N died on Sunday 2 April 2000, before the firm’s head office received the application.

In our view, once the matter of Mrs N’s illness came to light, the firm was entitled to check whether it had any effect on her ability to make further contributions. Even if the firm had delivered the application form to its head office by hand on Friday 31 March, there is no certainty that the application would have been processed on the same day. There was no evidence that the firm had promised to process it before the weekend. The purpose of the application was, it seemed, to mitigate liability to tax. We concluded that, given the circumstances, the firm did not act in breach of duty and we did not uphold the complaint.

..........................................................................................

08/14
Mrs G, a New Zealand citizen living and working in the UK, complained that she was mis-sold a personal pension. She said that the firm had not told her that she would not be able to transfer the personal pension plan into her New Zealand pension fund when she eventually returned home. She claimed that she would have increased the contributions to her New Zealand pension plan instead, had she known the position.

We established that her UK personal pension fund was contracted out of SERPS, so rebates from the Department of Social Security were paid into it, as well as Mrs G’s regular monthly contributions. UK government restrictions mean that any SERPS or contracted-out benefits can only be payable in the UK, so this element of her personal pension could not be transferred into her New Zealand pension. This restriction did not apply to her own contributions.

We considered that the representative should have discussed the issue of transferability with Mrs G, given her intentions to return to New Zealand. The firm was unable to provide any evidence that such a discussion had taken place.

We asked Mrs G to provide information from her New Zealand pension provider to support her claim for financial loss. This would need to show that the pension she would receive from the UK firm would be less than the one she would have received if she had made the same contributions into the New Zealand plan. Mrs G was unable to produce this information. She was only able to show that the demutalisation benefits she obtained from the New Zealand company would have been greater had she continued contributing into their plan.

As the advice was given in 1991 and the company did not demutualise until 1997, we did not consider that this loss could reasonably have been foreseen. We rejected the complaint as Mrs G was unable to prove she had suffered any financial loss.

............................................................................

08/15
The firm that advised Mrs K to opt-out of her occupational pension accepted she had suffered a loss as a result, and arranged to reinstate her into her former scheme. But she had been paying a lower level of contributions into her personal pension than she would have been required to contribute to her occupational pension scheme. The pension firm therefore required her to make up the difference, so that she could be fully reinstated into the scheme.

Mrs H considered this unfair and referred the complaint to us. We rejected the complaint because the firm’s actions were entirely in accordance with the pension review guidance.