Advisers divided over FOS Sesame annuity ruling


Advisers are divided over the impact a FOS annuity misselling ruling against Sesame could have on retirement advice.

The FOS ruled Sesame had to pay Mr K’s widow almost £21,000 after admitting it provided unsuitable advice to a client prior to a major operation.

The firm reached the deal after the death of its client, when his widow referred the case to the FOS.

Sesame advised Mr K to buy a lifetime annuity before undergoing surgery.

However, Mr K died three months later, leaving his widow complaining that the firm should have waited until after the operation before giving advice on his savings of £64,178.

Details of Mr K’s health issues were not provided by the FOS.

But some are concerned advisers are being put in a difficult position.

Aspect 8 financial planner Claire Walsh says: “If it transpires the adviser overlooked serious health issues that’s a different case but it makes me nervous.

“Older people are frequently in and out of hospital with health issues. You can’t predict the chances of someone dying. I’ve had several clients that have had hip replacements and no-one would be panicking beforehand that they might die.”

But Intelligent Pensions technical director David Trenner says: “I think FOS is right. If you want to sell annuities you have to cover health issues.

“If you’re an adviser you have to actually look at what the medical questionnaire says. It should say there is an operation due and then you should be saying you have a choice – if you buy now and this condition isn’t as bad as you thought you’d get a better rate now. But if you buy now and it’s worse than you thought, then it’s poor value.

“I feel this may be a problem with networks generally because if things are done centrally this is the kind of information that may slip between the gaps.”

Sesame agreed the advice was unsuitable and offered Mrs K a lump sum of £11,516.81 based on its calculation of the total income likely to be received by the widow from the annuity in her lifetime.

However, when Mrs K rejected the settlement, the FOS agreed in a provisional decision that the offer “was neither fair nor reasonable”.

The watchdog instead suggested that Sesame pay the lump sum Mrs K would have received, less the annuity already paid out, and recommended the two parties come to an agreement through which she pay the firm the income already received.

However, because the annuity cannot be cancelled, and the provider is not allowed to direct payments to third parties, Sesame instead offered £2,700 for inconvenience and an increased lump sum of £18,288.60, while Mrs K would additionally keep her annuity.

While the FOS found the offer fair, Mrs K again rejected it, stating that she would only receive £269.49 per month for the guaranteed 10-year period of the annuity.

However, ombudsman Terry Connor upheld Sesame’s offer, meaning the firm must pay Mrs K £20,988.60 in total.