Has financial advice about your pension cost you far more than you expected?

All the while the damage done by ‘Storm PPI’ – the widespread mis-selling of payment protection insurance – has been grabbing the financial headlines, another potential financial scandal has been quietly building in the background. And now financial regulators and lawyers in the know are turning their full attention towards the potential mis-selling of a significant number of retirement pensions. In the majority of cases, this typically occurs when people entering retirement are persuaded to convert their hard-earned pension plan savings amassed over the years into some kind of annuity which will hopefully bring them a safe fixed income for life.

Typical mis-sold products

There are five main types of mis-sold pension products:

  • SIPPS (Self-invested personal pensions)
  • Final salary transfer arrangements
  • SSAS (Small self-administered schemes)
  • OPS (Occupational Pensions)
  • QROPS (Qualifying Recognised Overseas Pension Schemes)

So what is a mis-sold pension?

Essentially, a mis-sold retirement pension involves any type of pension arrangement or scheme in which you might have been persuaded to invest, which required you to release money from any of your safe investments in order to switch funds into risky or unregulated alternative options. Such transfer packages were usually sold on the basis that the investors would receive incredible returns and thus be able to enjoy a comfortable, worry-free retirement. However, the reality often turns out to have life-changing financial consequences of an entirely different nature for the unfortunate investor.

Pension mis-selling occurs if you were offered inappropriate advice. Perhaps the element of risk was not properly explained to you, or maybe you were given incorrect or insufficient information about the new product upon which to base your conclusive decision. As a result, you finished up with a pension product which was not suitable for your needs.

Before asking you to commit to the deal, a professional adviser must ensure it meets your needs and spell out what the product offers as well as pointing out what it will not provide. Most importantly, your trusted financial adviser must ensure you understand any risks associated with the product. If this procedure is not followed, you may qualify for compensation.

The problem of mis-sold pension investments

A primary function of the Financial Conduct Authority is to regulate the selling of mainstream investments such as stocks and shares and the popular high-profile funds which accommodate the bulk of pensions investors. These authorised products are generally referred to as CIS (Collective Investment Schemes). These registered CIS schemes are also listed online, where they can be checked and verified.

Nevertheless, there are also a considerable volume of unregulated funds and investments which those with their own disposable retirement funds may be persuaded to invest in. Described as UCIS (Unregulated Collective Investment Schemes) these unrestricted funds are managed by a fund manager who buys and sells assets in what are mostly considered to be very high-risk investments.

One of the best-known examples of such investment trading is Harlequin Property, an enticing financial proposition which persuaded investors to support property investments overseas, including hotels and villas in exotic Caribbean locations. Investors from the UK alone were talked into supporting this company to the tune of £400 million. Needless to say, only a tiny proportion of the advertised properties ever got to the construction phase, and the Harlequin CEO is now the subject of an investigation by the Serious Fraud Office.

SIPPS (Self-invested personal pensions)

A SIPPS pension is a self-invested personal pension which has received the UK government’s stamp of approval. So there is nothing inherently wrong with this kind of personal pension saving scheme which allows people to make their own decisions about a personal pension strategy which accesses a full range of investments. Even though SIPPS arrangements don’t involve your employer, used wisely, they can be a rewarding option which will provide for your retirement while also allowing you greater control over how your pension pot is actually invested. The issues with this kind of arrangement only arise if there is a subsequent purchase of high-risk investments which attract substantial annual charges. If these products then perform poorly, they may afterwards prove almost impossible to sell or exchange.

One of the most frequently mis-sold UK pension products, many schemes have been created without proper regard for the nature of the underlying SIPPS investments. Some of those who recommend and sell SIPPS packages have been adversely criticised for seemingly failing to perform sufficiently rigorous due diligence on such products, and for not making enough background checks on the providers of these pension investment instruments.

In 2013, it was revealed that the majority of professional finance advisers had given SIPPS advice which was contrary to the requirements set down by the Financial Services Regulator. As a result, there have already been a considerable number of complaints lodged against SIPPS operators and financial advisors involved in selling such packages. Anyone who feels they have been similarly misinformed or misled could thus be entitled to file a mis-sold pension claim.

Final salary transfer pension arrangements

A final salary pension transfer scheme is an option whereby an employee gives up their right to receive a pension and its associated guarantees. In return the member of staff receives a lump sum payment to be subsequently invested in some kind of defined contribution or money purchase pension. The calculation of this lump sum is based on the employee’s final salary and thus confirms the amount which can be transferred across to an alternative pension product – an amount usually described as the pension CETV(cash equivalent transfer value).

Deciding to transfer your penion away from a final salary scheme is seldom a wise strategy. When this kind of final salary pension is transferred, as well as perhaps exposing pension savings to significant additional risk, the individual will automatically lose the right to any guaranteed benefits tied in to the existing pension package. So anyone encouraged to make such an investment could easily have been mis-sold and may qualify for some form of compensation.

SSAS (Small self-administered schemes)

SSAS pension arrangements are a kind of workplace pension saving scheme which can be managed by the company which creates the scheme. This arrangement does not involve any interaction with a financial institution or insurance company and typically serves to provide directors and senior staff with more investment flexibility as well as higher retirement benefits. But the scheme rules may also allow participation by those who are only related to company employees. SSAS pension members are free to decide how their pension savings are invested, and therefore can, for example, choose to invest their SSAS pension fund in the company itself.

This type of arrangement is usually recommended and set up by non-regulated entities like alternative product sellers and sales agents. HMRC’s SSAS rules permit members to invest in a broad category of assets which includes commercial property. An SSAS scheme can also provide commercial loans – and thus could be used to help the business purchase additional assets, such as new premises. The risk here is that such instruments may consist of high-risk investments whose investment liquidity may be compromised – which means they are likely to be very difficult to convert back into a cash amount anywhere near their nominal value.

The reason for transferring pension funds into an SSAS scheme is usually to bypass the safeguards provided by stringent pension regulations. But if there is evidence that a regulated professional finance adviser gave advice which left you misinformed when you agreed to transfer your penion into an SSAS scheme, there may be grounds for a pension mis-selling compensation claim.

OPS (Occupational Pensions)

An employer creates an occupational pension arrangement in order to provide retirement benefits for the company’s workforce. These schemes which help you to save regularly for your retirement, and also include a contribution from your employer, are controlled by the pensions regulator and are usually set up in one of three ways:

  • As a DB (Defined Benefit) arrangement – which is often a type of final salary scheme.
  • As a DC (Defined Contribution) arrangement – also known as a money purchase scheme.
  • As a so-called Hybrid scheme which typically contains elements of both DB and DC arrangements.

Generally speaking, such arrangements are reliable and well-regulated. However, there are some exceptions, and those who have participated in OPS schemes created by unregulated operatives may have grounds to formulate a compensation claim.

QROPS (Qualifying Recognised Overseas Pension Scheme)

The QROPS scheme is an overseas pension arrangement designed to meet the retirement needs of those who plan to live abroad once they retire from work. UK pension benefits can be transferred to other countries of residence but any approved scheme must be fully compliant with HMRC’s specified requirements. However, just because a QROPS scheme meets the minimum HMRC standards, does not mean all such schemes are necessarily the optimum choice for everyone who chooses to retire abroad. The advice offered must always explain that people transferring UK pension entitlements are leaving one of the safest and most highly regulated
financial territories in the world. So for some, staying with their existing UK pension could often be a wiser option.

One mis-selling problem which has arisen is that many people were promised they could receive a cash advance. But if the overseas scheme set up is not HMRC-approved, it is then deemed not to be a ‘recognised transfer’. And as a result, any payments are subject to a tax charge of at least 40%, which could rise to as much as 55%.

Pension claims: Possible evidence of mis-selling

When it comes to giving pensions advice, pensions advisers are under an obligation to adhere to strict protocols. The most likely areas where mis-selling is prone to occur are as follows:

  • Health and medical conditions – your pensions adviser may not ask about your state of health and any existing medical conditions, or may simply fail to include them in your pension plan documentation.
  • Insufficient information – your pensions adviser may not have covered all of the information or may have cut corners with important detail. If so, this may have left you unable to make a properly informed choice.
  • Recommended wrong deal – your pensions adviser may have recommended you opt for a personal pension when a company based scheme may have actually been a more advantageous choice.
  • Denied the chance to compare deals – your pensions adviser may not have given you the chance to compare several deals in order to choose the best value for money option.
  • Fees and charges were not explained – transferring from one type of pension to another usually incurs fees and other expenses, and sometimes these costs may wipe out most of the benefits of switching. Your pensions adviser may not have explained the impact of such charges.

A worrying trend?

The Financial Conduct Authority is concerned that large numbers of people may be leaving the comparative safety of final salary pensions and occupational direct benefit arrangements in favour of what are often less-secure forms of pension investments. Statistics from the Pensions Regulator show that direct benefit pension transfers for 2018/19 amounted to £34bn, which is more than twice the £14bn total for the previous year.

During 2018/19, more than 200,000 people opted out of final salary schemes, and around 390,000 have done so over the last three years. While elsewhere, data from Royal London reveals that, since 2016, transfers with a total value of £60bn have been reported to the Financial Conduct Authority.

The industry watchdog has been conducting its own consumer research into the quality of transfer advice and has indicated its own concern and disappointment. A telling FCA statistic shows that, between April 2015 and September 2018, more than 2,400 firms supplied advice on pension transfers to 234,951 members holding current pensions. As a result of these pension consultations, 162,047 individuals (69 per cent) were recommended to transfer away from what are regarded as ‘gold-plated’ secure final salary schemes.

How to reclaim your losses on mis-sold investments

In the complex financial world of pensions where many contracts are, or should be, tailored to the individual, different providers and different advisers will no doubt have approached the actual selling of pensions in a host of different ways. So it’s important to emphasise that one case of pension mis-selling may be very different from another.

Nevertheless, if you believe you may have been mis-sold a pension, you may stand to regain the losses you have incurred as a result of being given sub-standard financial advice, and also receive interest and compensation for the way you have been disadvantaged. It is likely that your case will need to be submitted to an experienced pension claims solicitor who will be able to conduct an expert review of your evidence and make a decision on the strength of your claim.

The process is straightforward and, given that pension claims cases are accepted on a ‘no win no fee’ basis, you will not have to pay up front to recoup your losses. Most claims are handled on your behalf by an expert solicitor and can usually be settled in a matter of months. If a provider should decline your claim and you have a strong case, with your agreement, the matter can then be placed in the hands of the Financial Ombudsman for a final decision.

Even if your pension transfer mis-selling occurred some time ago, there is still a good chance that you can reclaim compensation for the poor practice which has materially affected your retirement benefits. So complete our enquiry form now and we will get back to you promptly and start the process of assessing your claim.