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Offices gear up for test case result on windfall payouts

Life offices on the brink of demutualisation are gearing up for the outcome of a test case which could allow IFAs and providers to offset windfall payouts against misselling compensation.

The test case, brought by PI insurers Collegiate Insur-ance on behalf of IFA Needler Financial Services, is being heard on July 16. The FSA says IFAs can stall their pension review cases until the case is settled.

Friends Provident, Scot-tish Provident and Scottish Life, which are all holding demutualisation votes before the outcome is known, are telling policyholders that any compensation claims could be deducted from windfalls.

ScotLife is mailing its 220,000 members to explain the potential impact of the case which could mean the £500 windfall for loss of membership is deducted from any compensation for misselling.

IFAs will also be able take the windfall into account when assessing compensation. PI insurers, IFAs and providers could all see their misselling liabilities reduced if the court rules in Collegiate&#39s favour.

Windfalls from the demutualisation of Scottish Widows and Scottish Amicable could also be affected.

Scottish Life head of communications Alasdair Buch-anan says: “This situation is a direct result of the test case. The problem is we are in an indefinite position and do not know the outcome. We know there is a test case which might affect the way windfalls are treated so we wanted to draw it to the attention of our members.”

FSA spokeswoman Jackie Blyth says: “Firms have got to get on with the review. But it is up to firms to decide if they want to hold back and wait for the outcome of the court case. It will only affect a small proportion compared with the review population.”

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