Aifa has pledged to pursue its legal challenge against the FSCS over its handling of the pension review because it is not satisfied by the compensation scheme’s defence.
Aifa announced in December that it would push for a judicial review if the Financial Services Compensation Scheme failed to prove it was acting within its jurisdiction by paying old pension review claims that Aifa says would be thrown out under general law.
The challenge was prompted by the shock increase in pension review claims and predictions that advisers in block A16 face a 100 per cent levy hike from 25m in 2006/07 to 45m-50m over the next two years.
Aifa believes that many pension review complaints are beyond the jurisdiction of the FSCS because the Limitation Act renders complaints invalid 15 years after the advice was given. It also questions how the FSCS can revisit pension review claims from insolvent companies when the firm concerned dealt with the review when solvent.
The FSCS’s website says the starting point under its rules is to apply the limitation test under the Limitation Act 1980. It says where a firm has been declared in default, time stops running for the purposes of limitation. It also says it has the discretion to “disregard limitation where it considers it reasonable to do so”.
It says its general policy, also adopted by its forerunner, the Investors Compensation Scheme, is to not to apply limitation rules to pension review claims.
The FSCS says it would expect to reject any pension review complaint dealt with satisfactorily by the FSA and the Financial Ombudsman Service. But it says complaints that the FOS rejected because the firm was not in default at the time could be legitimately considered if the firm slipped into default.
Aifa director general Chris Cummings says: “We prefer to engage in dialogue than pursue legal action but this is one of the biggest issues in the industry today.
“Firms face an open-ended liability and an decreasing number of firms are facing a bill of 40m. The statute of limitation and discretionary powers of the regulators to disregard it need serious investigation.”