The sound of Champagne corks could be heard across the country as the
sign-up date for the pension review passed but is the sign-up date really
simple as it sounds and a cause
for celebration or merely an
early April fool?
On August 3, 1999, the FSA announced that investors who wanted their
personal pension reviewed had to request a review no later than March 31,
2000 – the sign-up date.
At the same time, the FSA said firms should complete all their phase two
reviews by June 30, 2002. Phase one cases should have been completed by
December 31, 1998.
It may, however, not be possible to rely on the sign-up date.
FSA Bulletin No 5 says: “Firms will only be able to apply the sign-up date
if they have complied with the regulatory guidance, particularly in
res^_pect of the specification and timetable for issuance of direct
invitation and other investor materials under the phase
Therefore, any failure to comply with the mailing req^_uirements of phase
two invalidates the sign-up date. The unanswered question, how^_ever, is
how any particular procedural failure will affect the review. Examples of
If the direct invitations
were issued one month late, does this mean
that the sign-up date is to be extended for one month – or is there no
applicable sign-up date and the time period infinite?
Similarly, if a group of inv^_estors was mistakenly omitted from the
starting population and only later issued with the investor materials, does
this invalidate the sign-up date for those cases or all cases?
Does it matter that materials were sent in a non-compliant envelope?
In due course, these questions will have to be addressed by the FSA. But,
even if a firm can rely on the sign-up date, complaints about advice still
have to be considered.
The FSA says: “After the sign-up date, investors will
be able to
exercise such rights
as remain open to them – through making a formal
complaint (including, if necessary, taking the matter to the omb^_udsman)
or, if they wish, by taking legal action.”
As far as compliance matters are concerned, a complaint to the ombudsman
is unlikely to be radically changed by the non-application of the pension
review system since the omb^_udsman is likely to apply the principles of
the review, if not the review itself.
The changed burden of proof under the review is irrelevant to
inquisitorial investigations by the ombudsman. There is, however, a
amental difference in terms
Where a cause of action arises for breach of contract or negligence, the
primary limitation period is six years from the date of the transaction.
This is the date when the investor suffers damage, as confirmed by the
court case Ryles v Chaudrey 1999.
In negligence claims, there is a further period of three years from: “The
earliest date on which the plaintiff first had both the knowledge
req^_uired for bringing an action for damages in respect of the relevant
damage and a right to bring such an action.”
Limitation issues have so far played very little role in cases which fall
within the review because the PIA Omb^_udsman has jurisdiction to consider
any complaint of negligence, where it would other^_- wise be time-barred,
if the complaint “concerns a contract or policy which is or may be the
subject of a review under the terms of the statement of pol^_icy on pension
transfers and opt-outs issued by the Securities and Investments Board on 25
October 1994 [as modified by PIA or other SRO]where in the opinion of the
ombudsman it would be inequitable for such a time bar to apply”.
If, however, an investor has failed to request a review before the sign-up
date, that case is excluded from the review and the ombudsman does not,
therefore, have jurisdiction to consider or comment on the case if it is
In the context of the a mis-advised pension transfer, opt-out or
non-joiner, the “knowledge” required to start the three-year period running
is knowledge of the material facts about the loss and the fact that the
loss is attributable to the negligent advice.
Arguably, the investor might not acquire such know^_ledge until he retires
because only then can he compare his pension with the deferred benefit
statement to discover that his personal pension is worse than his
guaranteed deferred benefits at retirement.
However, there exists ample ammunition to suggest that any investor has
already had more than three years' knowledge to bring a claim, given the
FSA Bulletin No 7 suspended loss assessments for two categories of
investor within phase two because research carried out by
PricewaterhouseCoopers suggested that the FSA assessment guidance may
result in a “material mis-statement of loss” in up to 35 per cent of phase
New guidance is still awai^_ted. Some phase two cases have already been
closed, assessments having been carried out on the old FSA-prescribed
basis. When new guidance is issued, will the FSA require firms to re-open
cases previously closed as showing no loss?
More significantly, will the FSA direct firms to re-open cases where loss
was assessed and redress paid to an investor “in full and final settlement”
of their claim but it is now established that such redress was
As a matter of law, these claims cannot be re-opened, the matter having
already been resolved. Any attempt by the FSA to require firms to re-open
such cases would, therefore, be susceptible to an application for judicial
review of the
Issues remain as to whether it is correct as a matter of law that
investors should not be required to give credit for windfall shares they
received on demutualisation of life offices such as Norwich Union, NPI and
The PIA directed firms to ignore windfall shares in assessing loss and
redress because: “The actual value [of the shares] in the hands of the
investor is entirely collateral to the value of whatever investment
ract he or she may have. It follows therefore that the
cial impact of demutual^_isation should be ignored.”
It is strongly arguable that the shares are not collateral (unrelated) to
The shares are integral to the pension/contract. If the investor had not
taken out the per^_sonal pension/S32 cont-
ract, he would never have
rec^_eived the shares.
Damages for negligence are compensatory, that is, claim^_ants are to be
put in the financial position they would have been in had they received
best or suitable advice.
The investor's loss is the difference between the value of the
occupational pension and the value of benefits received/ expected under the
personal pension/S32 contract, including the shares which the inv^_estor
would not otherwise
The PIA Ombudsman's newsletter last December illustrates the arguments.
Although the ombuds-
man repeated that demutualisation shares are
to the investment contract, in a non-pension review case he
dec^_ided that the investor should give credit for the shares because the
particular investment contract had been rescinded.
How is this different from cases where investors have been reinstated in
their occupational schemes and the personal pension surrendered?
Will the PIA Ombudsman apply regulatory update 33 to cases which are
excluded from the review because the complainant failed to meet the
It is probably too late to seek judicial review of update 33 (which the
PIA Ombudsman is applying to cases before him). However, the PIA
Omb^_udsman's terms of reference allow for a test case, where the issues
involved “may have important consequences for the business of firms
gener^_ally” or are “an important or novel point of law”.
With Collegiate Management Services, we are actively considering invoking
the test-case procedure following a preliminary assessment from the PIA
Ombudsman Bureau that the value of demutualisation shares is to be ignored.
The sign-up date has been hailed by some as the beginning of the end of
iew. It should certainly rem-
ove some of the difficulties
experienced in obtaining pro^_fess^_ional indemnity insurance because a
firm's review cases are now quantified.
However, the sign-up date does not dispose of existing contentious matters
and creates a few more issues of its own. Therefore, we say, watch this