July 30, 2010 7:12 pm

Pensioners to claim for mis-selling

“No-win, no-fee” claims management firms have turned their attention to the pensions industry – and are urging retired investors to make mis-selling claims if they believe they were “inappropriately funnelled” into lifetime annuity deals.

Under the current rules, pensioners approaching re-tirement should be supplied with timely, comprehensive and clear information, setting out all their options for buying an annuity, or drawing income from their pension funds, and should be informed about the open market option (OMO) to buy an annuity from any
provider.

Regulatory reviews have revealed that this is not always the case. Claims management firms now believe they could recover thousands of pounds for retirees who were kept in the dark about their options. Investors can check the advice they received themselves, though – and make their own claims for redress – by following this guide to annuity sales.

What is the problem?

Pensioners who shop around for the best annuity rates can boost their income for life by as much as 75 per cent by buying an annuity contract from the market-leading provider or getting an “enhanced” rate if in poor health. But, in spite of this, most savers will buy a lifetime annuity from their pension provider. Claims management firms say this is because pension providers are not making their customers fully aware of their options.

What are my rights?

Since 1978, investors
have been able to use the proceeds of their pension funds to buy an annuity from any life assurance company, and try to achieve the best annuity rate. This is called exercising the OMO and it is available to members of defined contribution pension schemes – which include personal pensions and many “money purchase” occupational schemes.

But it is only since 2002 that private pension providers have been compelled to write to customers nearing retirement to inform them of the OMO.

On what basis could I have a claim?

The claims firm www.
missoldannuity.co.uk says that, if you were not asked all the correct
questions, or provided with all the possible options to ensure you could make an informed choice of the correct annuity policy for you, you may have a case based on “competent advice”. Potential claimants include:

● Retirees who were led to believe they had no choice but to accept the annuity offered by their pension company, despite having the right to shop around for higher rates.

● Smokers who were not alerted to the higher incomes available from annuities that reflect their reduced life expectancy.

● Investors with diagnosed health problems who were not asked to declare these at the point of sale.

● Families of retirees who bought an annuity and died prematurely leaving nothing for dependants – because they did not realise they could protect their funds at little cost.

What does the rulebook say?

The Financial Services Authority’s (FSA) Conduct of Business Sourcebook (19.4) states that a pension provider must provide a written summary of the
client’s open market option, and include a clear message that exercising the OMO might result in a higher pension.

Is there a good chance that I could have a successful claim?

These cases are pretty much untested at the Financial Ombusdman Service (FOS). But it is worth noting that a 2008 review by the FSA found that almost 40 per cent of firms breached its rules on the material and information provided to pension investors.

Some firms were failing to give sufficient prominence to the OMO in their literature. Very few pension providers mentioned that people with health problems were likely to benefit by shopping around.

No providers were named in the report, which can be found at:

www.fsa.gov.uk/pages/Library/Other_publications/Pensions/2008/omo.shtml

How much compensation could I receive?

Compensation, if appropriate, would be designed to put you back into the financial position that you would have been in if you had not been mis-sold an annuity. In many cases, this could mean the difference between your current income and the best rate of income that could have been achieved with a more appropriate product.

How do I proceed? Should I use a claims handler?

Claims management firms do not charge upfront fees and will take your complaint all the way from dealing with your pension provider – including negotiating compensation – through to the Ombudsman. But these firms will take a chunk of your compensation as a fee – typically 25 per cent of the award. If you want to try this route, make sure the claims firm is registered at www.claimsregulation.gov.uk

Can I go it alone?

Yes. If you have a complaint about how your annuity purchase was administered, you can first take it up with the pension trustees or pension provider – and, if necessary refer it on to the pensions ombudsman. If you have a complaint about advice given by an independent financial adviser (IFA), take it to the adviser directly – and then, if necessary, refer it on to the FOS.

“If someone came to me with an annuity complaint, this is the route I would point to, rather than engaging me or any claims service to do it expensively,” says Hilary Messer, a director at RWP Solicitors.

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