Friends under fire over misleading statements

Friends Provident is facing calls to review hundreds of pension transfers after it emerged that crucial details about bonus guarantees had been omitted from statements issued to customers nearing retirement.

The call comes after Friends Prov conceded a computer bungle, to which it was first alerted in 2008, but only rectified in 2010, led to bonus information on some “paid-up” with-profits policy summaries being left out.

Bonuses guarantees are a significant feature of with-profits plans and can add thousands of pounds to a guaranteed sum or guaranteed income at maturity of the policy.

But the City regulator warned with-profits companies in 2007 to take greater care with their customer communications so that product features, such as valuable bonus guarantees, are not unclear or misleading.

Now consumer groups are calling on Friends Prov to contact policyholders to check if they had acted on the basis of an incomplete policy statement – and lost valuable pension income.

“They need to determine how many people made a decision to transfer out based on incomplete information and gave up their valuable guarantees,” says Dominic Lindley, a principal policy adviser with policy Which?

“If they don’t the Financial Services Authority should force them to do so.”

The problem came to light after Miles Hendy, a financial adviser, formally complained to Friends Prov in 2010 about an incomplete policy details statement issued for a client considering a pension transfer.

“I argued that the failure to provide adequate information to my client and me could have caused a £42,000 loss in pension income,” says Hendy, of Bristol-based Fraser Heath Financial Management.

Friends Prov said that it rectified the problem after Mr Hendy’s complaint in August 2010 highlighted that “ad hoc schedules” typically issued to IFAs requesting transfer valuations, “were not showing the bonus figures”.

It also conceded that due to an administrative error it did not escalate concerns about misleading statements first raised by Mr Hendy in 2008. “We apologise for this,” said the provider.

Friends said it did not have records of individual customers sent “ad hoc” policy details schedules.

However, it said that these schedules were produced in about 40 per cent of all pension transfer cases. 260 policyholders with “paid up” policies transferred out in the period when “ad hoc” statements were issued without bonus information.

Friends said this week that “if it were clear that a customer had transferred out of the fund and unknowingly given up guaranteed rights as a result, we would look to reinstate the policy.”

However, it resisted calls to proactively check for consumer detriment, arguing that other documents issued by Friends would have given the customer the full picture.

“We have always accurately quoted the transfer values of policies and our annual bonus notices have always showed the correct value of the guaranteed benefits,” Friends argued.

“The incomplete information relates only to the policy schedule details document which would only have been sent on specific request.”

However, Hendy suspects many customers would have acted on poor information.

“ There is no doubt in my opinion that policyholders will have been recommended to transfer, and proceeded with a transfer, based on the information they have been sending out in a response to IFAs’ requests for transfer details,” says Hendy.

“Their reliance on an argument that the annual bonus statement is correct is exceptionally weak.”

The Financial Services Authority does not comment on individual cases. But a spokesman said that the FSA expected that a firm pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading.

The development comes as the FSA is working to address the issue of poor communications by with profits companies after a follow up review in 2010 found “significant weaknesses” in the information provided to customers on the risk and reward balance of their policies.

The FSA is also still considering enforcement action against two with profits companies following its 2010 review. Friends said it is not subject to enforcement investigations.

In December last year the FSA fined pension provider Scottish Equitable £2.8m and ordered the firm to pay £60m in redress to hundreds of thousands of customers for poor administrative procedures.

Among the blunders identified by the FSA, Scottish Equitable had incorrectly calculated guaranteed minimum pension payments and future benefits of 774 customers.

As part of the redress programme Scottish Equitable was to compensate customers who missed out on payments or benefits that they were entitled to or who were disadvantaged by its actions.

“This case shows the importance of getting customer administrative procedures right and fixing them quickly when they go wrong. This is a key part of treating customers fairly,” said the FSA last year.

“By letting the issues build up over such a long period, Scottish Equitable Plc made it even more difficult to fix the problems and this led to delays in getting compensation to customers.”

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