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Ombudsman upholds complaint about 1989 pension transfer

The Financial Ombudsman Service has upheld a complaint that a client was given “fundamentally bad advice” to transfer out of a company pension nearly 30 years ago.

In 1989, financial advice firm The Analysts recommended that a client, referred to as Mr F, should transfer his preserved pension benefits in the Mars Pension Plan into a section 32 plan.

The FOS said that the adviser’s wording around guarantees in the documentation “suggested a level of certainty which was misleading” and that the client “couldn’t have reasonably understood the extent to which he’d be exposed to risk with the section 32 plan because he wasn’t fairly informed about the lower as well as the upper projected growths.”

In his cover letter at the time, the adviser wrote: “What is actually paid will depend upon the future investment performance … but I believe that you can expect them to perform well”.

In citing a total pension, the adviser said it “will” amount to a certain value.

The adviser challenged this finding, arguing that he client had confirmed he had read a Norwich Union Illustration that had both higher and lower bounds listed. They also said that the adjudicator has underplayed the risks there were of staying in Mars’ scheme, and that problems could have been “cleared up” if the client had approached the adviser promptly.

FOS strategy head defends service against IFA misconceptions

In a provisional decision, a FOS adjudicator calculated that because of a drop in inflation since he left Mars, the client’s pension had been reduced by almost £5,000 a year.

After an actuary’s assessment and discussions with the scheme administrator, FOS calculated a total loss of around £300,000.

The Analysts challenged the ruling. In a final decision, the ombudsman accepts that while risk warnings were given, the client was misled about the risks involved.

The ombudsman has ordered The Analysts to pay £100,000 in redress, to be paid within 28 days, or the amount will increase at 8 per cent a year.

He also recommends the firm pay the balance of what is left of the pension losses, but this is not binding.



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There are 20 comments at the moment, we would love to hear your opinion too.

  1. NOW, I was advising in 1989 so do understand that this was bad advice, even then, if not moved for ill health reasons from a DB arrangement, or was it. We only have half the story, but lets assume it was poor advice.

    For the younger readers, we did not have a fact find until 1988, when the Financial Services Act came into force and illustrations were done from rate books not computers. The fact find most likely would have been 2 maybe three pages long with very minimal notes. The suitability letter in those days would have been 2 to 4 pages long. I am sure many cannot imagine such a time.

    Why has it taken 30 years for the client to complain. Why like so many others did this client not complain towards the end of the 90’s. The fact that todays rates are applied makes a massive difference to the calculations compared to 16 to 20 years ago. I find it strange and insulting we have a time limit applied to PPI, some 10 years on from the start of the complaints, yet no time limit, long stop applied to pension or investments.

    So, had inflation remained at 15%, gilts yields stayed high, would this complaint stand? The illustrations in 1989 showing growth rates of likely 9,12 & 14%, insisted on by the new regulator Securities & Investment Board (SIB), today we know now to be unrealistic. No one knows the future, surely this has to become the regulatory statement. We cannot keep being beaten up by illustrations, they are meaningless, a waste of time. Has anyone actually got a single illustration from the last 30 years that has been right!

    The risk warning applied would have been as required at that time, yet it would appear that todays standards are being applied. Again, the FOS state they do not do this, the adviser did not guarantee the return, he stated he could expect them to perform well. Based against what was not stated, bonds, inflation, average returns?

    Even if this was bad advice (being subjective before the army of, it is starts), 30 years on, with knowledge over 25 years ago this was bad advice well reported in the news, should this individual still be allowed to claim?

    I feel sorry for the client as he has most likely been poorly advised. I feel sorry for the adviser, who in 1989 was most likely following the company he worked for training and process, on those days kept in the dark and fed dung (a mushroom). Most of all I feel sorry for the industry, as who can we move forward, keep advising without a long stop, how can PI insurance continue, how the hell do you keep advising on Pension Freedoms. It will all change tomorrow, next year, next decade and it would appear the client has all the time in the world.

  2. Was not a 1989 DB transfer included in the Pension Review?

  3. Agree with Martin Evans and Peter Turner. Problem lies with the FOS. Applying todays understanding and values retrospectively. This judgment should have been thrown out and in my view stinks to high heaven.

    Audit the FOS as they have no screening for FRAUD!

  4. Sadly, it’s cr4p advice like this that stops us getting a longstop. I was a compliance officer for a lot of the period 1988 – 1995 and squashed FSS transfers by the dozen, almost getting fired for my pains on one occasion when I nixed a transfer out of the NHS scheme. We should have a longstop and we should have self-regulation, but we’ll never get it while there are those prepared to defend the indefensible.

  5. In some circumstances FOS can look at complaint cases which should have been in the review;

    • Having read the FSA’s rule DISP 3.3.4 (5), the key section that caught my eye is:-

      “we may dismiss a complaint without considering its merits if the business has reviewed the complaint in line with the regulatory guidance [of the day].

      We sometimes receive complaints where the consumer’s pension advice is said to have [already] been reviewed in line with the regulatory guidance. For us to be able to look into the complaint, we would need to be satisfied:

      that the review appears to have been carried out incorrectly; or

      that the regulatory guidance does not address the consumer’s circumstances – and so another approach should be taken.

      Although there are exceptions, in most cases we decide that the complaint should not be considered.”

      So, in carrying out the original review, even if the regulatory guidance of the day WAS fully and properly observed, decades later the FOS can move the goalposts retrospectively and declare the firm to be at fault anyway, on the grounds that the guidance itself was inadequate.

      It’s a bit like prosecuting someone for having driven along a stretch of road 28 years ago within the then posted speed limit because that speed limit has since been lowered.

      This verdict may well have opened the floodgates for a whole slew of new complaints in respect of cases already reviewed and (supposedly) settled. For advisers, it’s a lose lose situation.

  6. Martin, do you think the adviser did this because it was in the interests of this gentleman or for the commission?
    The entire culture of financial services in those days was to reward bad behaviour from, generally speaking, good people.

  7. This is disturbing. In theory, the original piece of advice is irrelevant. This is not a judgement on whether it should or should not have happened, nor whether the original advice was flawed or whatever or even if the transfer values was a true and fair view of the benefits foregone.
    What is disturbing is that the Ombudsman is exceeding his jurisdiction and the advisory firm (or supported by its insurers) should launch a judicial review immediately. The case is time-barred.
    The Ombudsman’s own guidance is very clear on this matter and the six years has elapsed and the three years from likely first discovery of an issue of concern. Not only that but the case had to be included in the Pension Review and this event in itself was more than enough to bank both the six and the three-year review for opportunity for the client to take a case to the Ombudsman.
    The problem could centre upon whether the advisory firm can prove the case was included in its Pension Review. If it can, the case is null and void and should never have been tolerated by the FOS. Not only were there copious alerts at the time but even if a review of the client’s pension took place and was deemed ‘compliant’ (even if that can be demonstrated to have been flawed on today’s criteria or even then), then the client’s six-month time clock began ticking from the date of that letter.
    A firm could not exclude a case from the Pension Review. The trawl required to identify all cases was so extensive that it is almost a certainty that the case would have been included in the firm’s review. A copious quantity of letters inviting clients to respond with regulatory letters and contents, including envelopes emblazoned with ‘Have you been miss-sold’ were sent to every opt-out or transferring client. The Regulator did copious audits of firms’ records to ensure they were doing it correctly – maybe this firm had a visit.
    Almost regardless, no client can say that he had not been aware at some point in the last few decades that he was not aware that he might have had reason to complain.
    The other serious and untenable situation is that it would appear the FOS is rewriting (or trying to) the rules so that the regulator’s generic rule of keeping documentation for six years is baloney in that none of us might be able to second guess what historic piece of advice could come back to be used against us some thirty years down the line. I know the rules for Pension Transfers are different but that is not the point. This case should have been challenged on jurisdiction from the first point the client complained recently.

  8. Not withstanding the fcat I agree with Philip Milton’s every word above, I woudl like to just focus on one issue I agree with which Martin Evans has said.
    “I find it strange and insulting we have a time limit applied to PPI, some 10 years on from the start of the complaints, yet no time limit, long stop applied to pension or investments”
    I think what is happening here may be subject to the Bribery Act, which is a criminal issue on the part of the F-pack.
    The banks went bust in 2007/08 and were refinanced by the general public, yet they are getting an artificial longstop appleid for their PPI misselling (and those of us in banking in the 80’s warned about it then and continued to for decades) While advisers (we never did DB transfer)are repeatedly assaulted outwith common law Timebars and Lonsgtops even AFTER as PM has pointed out all due process has been followed as demanded by prvious regulators.
    This STINKS to high heaven and is pretty much indefensible.
    The iorny is that correct me if I am wrong, the full supposed loss to the consuemr is not enforceable anyway.
    Can the FOS’s “Mouth of Sauron” justify publicly the reason for their overriding everything PM has highlighted here about not just common law, but the rules?
    Anyoneseen the DRN number? I probably better read it before I say much more as sometimes the headline is at odds with the detail, BUT the issues highlighted by PM should overide what is “fair and reasonable” due to the tiemscale anyway UNLESS there wsas a willful avoidance or incorrect Pension Review carried out, which would start (in my mind) a fresh 15 year longstop clock ticking.
    I have said many times before to the F-pack including when meeting with them as part of the (former) APFA Longstop working party, that both the Timebars and Longstop should be linked to whetehr an ongoings ervice is being provided (or not) with a potential resetting of time limits and bars dependant upon what is AGREED to be reviewed by the exisiting or any new firm taking over a client.
    We MOT our cars annually and the new mechanic is responsible for teh serveicability at THAT point of time on that day only. We appear to be infinitely responsible however much the consuemr tinkes with their car afterwards or it proves the manufacturer lied about the product (VW diesel anybody seen sales staff and mechanic’s being forced to pay?)

  9. If nothing else, you have to admit that the ability of the advice firm to retrieve records of a transaction arranged 28 years ago is a pretty impressive example of good housekeeping. That aside, the likelihood of their PI insurer coughing up is remote in the extreme (the chances of a lottery win must surely be better) so, unless they have resources on a par with those of a big national firm, finding redress of £100,000 may well break the business. What a nightmare of an industry we operate in.

    • 1. The PI inurer if it was notified correclty will probably have to pay out to the FOS limit (they’re regulated by the FCA too don’t forget)
      2. the advice firm will pay it’s excess.
      3. The PI firm will then refuse to reinsure at renewal and it’s unlikely the firm will be able to obtain PI elsewhere
      4. The firm will then have it’s FCA permissions removed if it has no PI
      5. Other chancer complainants will then start coming out of the wordwork
      6. Complaints will then fall to the FSCS ratehr than go VIA the FOS, who are then legally obliged to make use of the 15 year longstop.
      7 This will then have resulted in preference being given to payment of this massive claim at the expense of any smaller complainants who may NOT have been timebarred.
      This could prove an interesting case to watch how it progresses now.

  10. Key bit at the end of the DRN –
    “It’s unlikely that Mr
    F can accept my decision
    and go to court to ask
    for the balance.”
    In other words the FOS are knowingley trying to enforce a decision which would be Timbarred and Longstopped in a court.
    One of the defendants is already DEAD it appears from the DRN!!!!
    Surely this is an abuse of power?
    Not finished reading the whoel thing as it’s 45 pages long!

  11. Another key point the firm wanetd to taken in to account ” there was a break in causation of risk” which again the FOS seem to have ignored.
    Reading this FOS decision I am gald I decided nbot to sit AF7 this week and I probably never will now. anyone advising on DB transfers is off their trolly and potentially this claims will fall to the FSCS in due course who will then say TIMEBAR & LONGSTOP I would hope and not pass the liability on by levy to thsoe of us who don’t advise on DB transfers.
    In ther meantime those with shed loads of money going to Dubai based firms who when their won complaince depts say NO (which must be bad) simply pass the business on to Malta where it is done.
    FF sake F-pack get the real criminals, not those like this firm who have put togetehr what appears avery lucid defence to the FOS which should have bene sufficient, despite the fact it should have been Timebarred and Longstopped anyway! The business was written pre FSMA 2000, so at the time the contract took place, the longstop was still in the rule book. This IS retrospective injustice.

  12. The company was popped late last year, the guy behind it was 77 years old.

    Complainant was a Jeffrey Fam who lives in Spain.

    So thats £100k out of the FSCS then….

    • No, it should be zero out of FSCS as
      1. firstly the business was a partnership and FOS are enforcing the £100k against the partnership and thus the other 3 partners as it saves the FOS the embaressment of pursuing the deceased estate.
      2. It’s unlikely the partners will have assets less than £100 between them and as private individuals, the court coudl well enforce the FOS decesiomn for £100k even if they would reject any attempt to get the whole £300k out of hand!
      3. The partners could claim against the deceased estate to try and recover the £100k if the PI insurer isn’t covering the majority.(I suspect PI lapsed years ago even if there wass run off cover)

      • This should all have been cleared up by the Pension Review and the advsier who took over Mr Fam in 2003. Anyone know who that adviser was? In my mind any causation should have changed when he took over and teh 3 year timebar should have applied from then anyway. So 1989 +15 = 2004 Longstop which existed when the business was written.
        Timebarering by the pension review itseld and then a furtehr timebar following the change of advsier in 2003 + 3 years + 2006 latest reasonable date the FOS coudl argue they should have jurisdiction and yet the complait came in when? I think about 2011.
        Who consdiers this fair and reasonable in the circumstances?

  13. Thinking about it, Mr F probably wasn’t at all minded to complain until a third party put him up to it, on the grounds that, even though he fully understood the risks and possible downside of the course of action he agreed to follow, that the advice given fully met the best known standards of the day and that no one could reasonably have foreseen the precipitous decline in annuity rates or predict future investment returns, the FOS would probably accept his claim that he didn’t really understand the risks and that a disappointing outcome must surely mean that the advice was defective. And so it has turned out.

  14. There are so many issues surrounding this case and the sequence of events is not at all clear. however one fact is very pertinent – the original complaint dates from 2002… Which means it may well have failed time barring

  15. I am puzzled by para 5.

    Where the IFA says how much the total pension amount will be, is he talking about the DB Scheme or the benefits from the PPP.

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