Last week, MM published a story on a ruling in favour of Scottish Widows that meant an IFA firm could not claim money for admin expenses from a provider it had not recommended when trying to apply the open market option. Here, we publish a letter outlining the IFA's concerns.
My firm is increasingly concerned with the lack of care and attention shown by pension providers when asked to pass pension funds to annuity providers.
Most annuity quotations are only valid for 14 days yet it can sometimes take up to several months for some pension providers to finally part with the money as past of the open market option provision.
In these days of fluctuating and reducing annuity rates, these delays can cause considerable loss.
IFAs have been encouraging clients to take the open market options and now the FSA is, quite rightly, doing the same with the compulsory literature being issued with every pension maturity.
However, we believe this is being undermined by the slowness of payment where the paperwork is correct, complete and quickly submitted.
We had cause to complain to Scottish Widows in a case of a client of poor health retiring from an executive pension plan. The client qualified for an enhanced annuity with Britannic.
Scottish Widows' poor administration caused considerable delay and much extra work. We charged Widows for this extra work at our normal fee rates, an account of £1,400.
We considered that we could not charge the client for this work – the client's reaction would have been to tell us to charge it to Widows.
Widows apologised and offered us £480. We considered this derisory and took them to the small claims court.
Scottish Widows engaged solicitors at considerable cost plus the services of a barrister to defend the claim. On the day of the hearing, Widows sent a member of its legal department in Edinburgh to Portsmouth County Court. I represented Procrown Investments myself.
The judge considered that Scottish Widows, although negligent (the judge said that “they did not cover themselves in glory”), did not have a duty of care to us as there was no contractual relationship between us. He had considerable sympathy for us but had to dismiss our claim on this point of law.
Under FSA rules ex gratia payments are at the discretion of the pension provider although the judge did agree with me that this rule was based on business directly placed with a provider – where a policy is established by a provider contrary to the original proposal rather than this example.
The judge referred us back to the FSA. He made no award of costs – being the small claims court – so our only satisfaction was the considerable costs incurred by Widows.
We believe there is a duty of care between fellow members of the FSA and are now pursuing the matter.
Is there not a case for the FSA to determine what is a fair ex-gratia payment in cases such as ours rather than leave it to the discretion of the providers?
Should there not be an ombudsman for IFAs to refer to in cases where they are caused considerable extra work that they cannot justifying charging to their clients?
This has become more relevant now as I find myself spending up to 25 per cent of my time dealing with poor administration.
Director, Procrown Investments, Fareham, Hants