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L&G ordered to compensate investors over ‘unsuitable’ pension transfer advice

The Financial Ombudsman Service has ordered Legal & General Assurance Society to compensate two investors over unsuitable pension transfer advice given 21 years ago.

In two final decision notices from September, published this week, the FOS says L&G should not have advised the transfers into personal pensions.

In the first case, Mrs A was contacted by L&G in 1993 and told she should transfer her £20,451 pot out of a defined benefit scheme and into a personal pension.

She was 31, self-employed and told she needed to make a return of 10.2 per cent a year to match her existing benefits.

The ombudsman found that Mrs A’s very cautious attitude to risk should never have seen her transferred into a personal pension.

It said she was given “unsuitable” advice to transfer out of a DB scheme and into a mixture of with profits and investments.

In the second case, Mr C was contacted by L&G in 1993 and told to transfer out of his existing workplace scheme.

He was 42 and told he needed to make 9.9 per cent a year to match his existing benefits.

L&G recommended the transfer would provide “likely benefits” which FOS says amounted to advice.

Mr C had declined to answer the majority of L&G’s questionnaire including questions over his attitude to risk and personal circumstances.

Ombudsman Adrian Hudson said he should have been treated as execution only or an insistent transfer but was not.

He said: “At the time of advice to transfer the pension benefits that Mr C had built up in his former employer’s pension scheme were his only provision at risk by transferring to a personal pension arrangement.”

FOS says compensation should be made via the Pension Review redress programme, which compensates those who have seen bad pension transfer advice.

Pension providers have expressed alarm over the possibility of a flood of insistent transfers out of defined benefit schemes to enjoy the new Budget freedoms. Pensions minister Steve Webb says any saver who wishes to ignore advice should not be blocked from transferring.

Legal & General refused to comment.


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There are 17 comments at the moment, we would love to hear your opinion too.

  1. How long ago did these people suspect that their PP’s were looking unlikely to produce eventual benefits better than than those given up? It appears that, when it comes to pensions (and maybe just about any other class of business) the powers that be are absolutely determined not to allow any provisions such as a statute of limitations, time-barring or longstop. In years to come, we may see complaints about advice given 40 years earlier being upheld by the FOS.

  2. Do I not recall 13% as a regulator mandated possible growth rate assumption at about this time or have I forgotten my history?

  3. It would be interesting to find out what growth rates the Ombudsman would have found acceptable back in the early 90’s.

  4. Were these not flagged under the pensions review in the late 90’s? If they were, then correspondence would have been issued to the customers to ensure that matters were as they should be, in which case the matter would be time-barred surely?

    I suspect that the FOS case notes paint a different picture and I haven’t time to read these but if they didn’t get addressed under the review, then why not and are there many more?

  5. Nothing to do with ‘how wrong’ or ‘right’ but how could this happen when both would have been written-to incessantly following the Pension Review so the Statute of Limitation should demand the three years’ limit for ‘will have known about the problem’ from that point? Why did L&G not defend on this point and challenge jurisdiction?

  6. @Simon Webster, @Sean

    Well, when the FCA (then trading as SIB) decided to retrospectively review pension business in the late 1990s – and these two cases would have been in the ‘review period’ – it set down a table of yields that would have been considered ‘financially viable’. Pretty sure these two cases would have been within those parameters as well. But I suspect even the retrospective criteria applied to 1993 sales has moved on a bit over the years.

  7. Is Mr Webb reading this I wonder 🙂

  8. 21 years ago the term “attitude to risk” in our industry had not been invented so how can the FOS even think to bring this into play now? It is yet another sign of retrospective legislation.

  9. Incompetent Regulators 5th November 2014 at 4:24 pm

    Ombudsman Adrian Hudson is well know for these kind of decisions. Hindsight is a privileged thing for the FOS staff. However, they still make great mis-judgments all the time. This is the man who awarded compensation to those who were not advised to switch to cash before purchasing an annuity if the client lost out in a market downturn, even though there is no such regulatory rule as such. Now of course annuities are no longer flavour of the month.

    This man lives in the cuckoo land of the totally risk averse………….when it suits them! As an X Actuary why does he work at the FOS? They make it up as they go along. Quote ‘unashamedly make the law’ once was quoted by an x chief Ombudsman.

  10. @ Marty – Whilst I agree with your sentiment, risk scales were on my then employer’s (NatWest as introducers to NatWest Life) fact find from 1993. The 1992 factfind when I was an Independent (for NatWest), included some kine of risk attitude as well if I remember correctly. The use of the abbreviation “ATR” wording I agree wasn’t in common usage

  11. Great result for Mrs A and Mr C. Congratulations to them for their persistence.

    Well done also to Ombudsman Hudson. He gives hope to those of us who have been skinned by financial advisers.

  12. Dear Karen White

    Despite a genuine offer of assistance in your plight you decline to contact me and then demonstrate an inequitable appreciation of a case and a particular Ombudsman’s apparent partisan judgements outside of jurisdiction and the law.

    Do we have to assume that you had no part in the decision-making process in your own advisory processes? Such comments as you leave do little to substantiate a genuine grievance in the face of a genuine offer to help – or provide impartial opinion.

  13. Between 1988 and 2004 LAUTRO – which was the then equivalent of the FCA – mandated that insurers had to use fictional charge assumptions when projecting future benefits.

    If I recall correctly, only Equitable Life and London Life could show charges that were lower than the fictional rate.

    In short, this meant that every pension was bound to fall behind the projected assumptions even if the growth rates used were actually achieved.

    A rational observer would note that the then regulator was as culpable as any adviser yet, as we know, blame never attaches to the bureaucrats.

    The PIA/FSA/FCA is well aware of this as they ordered an enquiry into this in respect of endowments and this offered up the ‘LAUTRO 12’, twelve companies that they found to be guilty of mis-projecting. This grew to the ‘LAUTRO 19’ and then pretty much to every insurer being deemed culpable. Nothing came of this and the FOS, if it really is an even-handed and fair body, would take this factor into account when assessing liability and when apportioning the restitution due.

  14. And Alan

    Did you know that Equitable Life could do that because they declared bonuses on their with profits’ funds AFTER commissions (sorry, marketing bonuses to field staff) and other costs were all deducted from investment returns before bonuses were declared, so the ‘costs’ actually attributed to policies were so low? They were not alone in this nefarious behaviour but Equitable’s last accounts showed the average field staff enjoyed a remuneration of well over £100000 whereas the commissioned man from the Pru was receiving £20000 and the educated albeit ignorant accountants and solicitors who used them and recommended them did so because they didn’t pay commission to middlemen….

    Needless to say, the Regulator at the time had not appreciated that was the position then either nor that the Society did not have reserves to support the guaranteed annuities so thus was declaring bonuses in excess of those it should have done had those guarantees had appropriate provision when the sun was shining (as other insurers did of course).

    I have always been amazed that there have not been actions against accountants and solicitors who had been negligent by recommending the Society to their clients wholesale without verifying that reserves for such guaranteed liabilities were in place (or why the bonuses seemed so high or the sales staff so well rewarded for specious sales).

  15. In 2035 are we going to have judgements for those who dumped perfectly good personal pensions because they were Auto Enrolled into a one size fits all single naff fund AE scheme?

  16. richard libberton 6th November 2014 at 11:48 am

    To me, this is a bit like taking out term assurance, surviving to the end of the term, complaining that one’s demise did not occur within the period of cover and consequently getting all one’s premiums back….

    but that’s just me.

  17. @MM – Thanks for outing the links to the FOS decisions in your article, it has meant I could read the decisions BEFORE risking making a fool of myself and commenting.
    With regard the second case (Mr C), if you read it, you will probably come to the same conclusion as me i.e. the Ombudsman’s decision was correct and he had no choice but to decide in the claimants favour as this should have been an insistent client or execution only case, it could not be advised as an action in the absence of any meaningful fact find info.
    The first case (Mrs A) , I am NOT convinced the FOS came to a fair and reasonable conclusion as whilst I think it unlikely ANY advisor would recommend a similar case NOW, but the case seems to have been judged on 2014 circumstances and documentation rather than what was fair, reasonable and the norm in 1993 ( I don’t have occupational pension transfer permissions).
    I would be interested to know what happened when BOTH these cases were reviewed under the pension review as one has to question how the second one got through? I can see why the first one did as it is not clear cut even NOW, let alone when it was assessed, nor when the advice was originally given.
    I would argue there should be some situations where the FOS DECLINES to make a decision either way and instead refers the consumer to the law and this would probably be one of them. The case was from 1993, and the complaint was made in 2013, some 20 years later!

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