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Sesame to pay widow £21,000 over missold annuity

Anybody that needs to complain in the UK about a financial institution or service, must ultimately do so to the Financial Ombudsman. The Ombudsman will then arbitrate on the matter. The can adjudicate on any matter relating to banking, insurance, mortgages, credit cards and store cards, loans, credit, pensions, savings, investments, hire purchase, pawnbroking, money transfer, financial advice, stocks, shares, unit trusts and bonds. Basically, if there’s an issue related to any financial matter in the UK, the Ombudsman is empowered to arbitrate if the matter cannot be resolved between the two parties. Here the bank note imagery of a sterling bank note carries the message, with the Gavel symbolising the adjudication.

Sesame has been ordered to pay a widow almost £21,000 after admitting it provided unsuitable advice to a client prior to a major operation.

The firm reached the deal after the death of its client, when his widow referred the case to the Financial Ombudsman Service.

Sesame advised its client, Mr K, to buy a lifetime annuity before undergoing surgery.

However, Mr K died three months later, leaving his widow complaining that the firm should have waited until after the operation before giving advice on his savings of £64,178.

Sesame agreed the advice was unsuitable, and offered Mrs K a lump sum of £11,516.81 based on its calculation of the total income likely to be received by the widow from the annuity in her lifetime.

However, when Mrs K rejected the settlement, the FOS agreed in a provisional decision that the offer “was neither fair nor reasonable”.

The watchdog instead suggested that Sesame pay the lump sum Mrs K would have received, less the annuity already paid out, and recommended the two parties come to an agreement through which she pay the firm the income already received.

However, because the annuity cannot be cancelled, and the provider is not allowed to direct payments to third parties, Sesame instead offered £2,700 for inconvenience and an increased lump sum of £18,288.60, while Mrs K would additionally keep her annuity.

While the FOS found the offer fair, Mrs K again rejected the offer, stating that she would only receive £269.49 per month for the guaranteed 10-year period of the annuity.

Including the lump sum offers, this would equate to a total £13,000 below Mr K’s savings of £64,178.

The widow additionally claimed that her family history reflected a life expectancy below 62, and that aged 58, it was unlikely she would continue to receive any further annuity beyond the product’s 10-year guarantee period.

However, ombudsman Terry Connor upheld Sesame’s offer, meaning firm must pay Mrs K £20,988.60.

He said: “I appreciate that Mrs K is unhappy with the fact that my original proposal for the full payment of the lump sum has now been changed. But my decision has to not only be fair and reasonable, but to also adhere to current legislation.

“It is not possible to cancel the annuity. This is due to current HMRC and pensions legislation. Therefore the annuity must remain in force, which means that any future income paid to Mrs K must be taken into consideration.

“If I was to award the payment of the full lump sum Mrs K would have obtained more money than she is entitled to: the full lump sum and the future annuity payments. It is not possible for annuity payments to be redirected to Sesame because pension’s legislation dictates that the annuity provider must pay them to Mrs K.

“It is therefore important that a solution to the problem is reached, which is fair, reasonable, adheres to current legislation and is practical to implement.”

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. I’d be interested to understand more details about this case – what sort of operation was the man having? I think this raises difficult questions on how we advise clients with health issues with smaller pensions. I’m arranging an enhanced annuity for a client with health issues who is regularly in hospital for operations – does this suggest I shouldn’t in case he dies? But he wants his money and his pot is too small for drawdown.

  2. Perhaps, under the circumstances, such as we can know them, a fixed, short term annuity would have been more suitable. Or perhaps just drawing his TFC entitlement and leaving the rest of the fund untouched until several months after the operation.

    Assuming the client’s health issues and the prospects of success or failure of the operation he was shortly to undergo were comprehensively recorded, it’s hard to see how a lifetime annuity, even on an enhanced rate, can possibly have been the right thing to recommend.

  3. It begs the question whether it is prudent now to transact business for any product that does not facilitate capital access for the individual or their family members, whatever the background of this case

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