UK Pensions Selling Scandals
There were various scandals that arose in the past few years to dent the reputation of the pensions world. They came mainly from the launching of personal pensions in 1988 which were supposed to extend “consumer choice”.
Bear in mind that most of the following scandals relate to how the pensions were sold and not the fact that there’s anything wrong with the concept of personal pensions themselves.
The main issue raised is who is supposed to guard the pension funds from acting improperly.
The highly paid suits who are supposed to do this almost always appear to have been completely negligent when a scandal surfaces. However, apart from a few slapped wrists they aren’t held liable and often seem to end up with big pay offs and new board room jobs.
The poor pensioners don’t tend to do quite as well.
Perhaps the biggest scandal of the pensions business is how it has made a lot of people very wealthy but only a tiny minority have been pensioners
The Personal Pension Scandal
The most significant scandal was caused by people being persuaded, wrongly, to move away from their occupational pensions into personal pensions during the late 80’s and early 90’s.
This is been blamed on a change in the law by the Conservative government in the 80’s who stopped employers making their Occupational Pension plans compulsory for all employees, thereby opening the way for the newly introduced personal pensions.
Helped by carefully orchestrated sale drives personal pensions sold well and the financial services industry enjoyed a huge boom – some would say a feeding frenzy.
But it gradually became clear that people who had changed from their occupational pensions into personal pensions were much worse off as a result – e.g. due to the loss of the employers’ contributions as well as some of the personal pensions being bad buys thanks to their charges and lack of flexibility.
If you feel you may have been mis sold your pension, the company which sold it to you must give you an information pack on the scandal. If you feel you may have been a victim of mis-selling contact the Financial Conduct Authority (FCA). Note: This was supposed to have been before the deadline of 31st March 2000 but try them anyway.
The FCA was dealing first with most of the priority cases i.e. people closest to retirement or already on a pension.
The next phase involved the estimated 2 million plus who have also been mis sold a personal pension. This is due to be completed by June 2002. However so far only about half the estimated victims have contacted their pension provider to ask for a review.
For further reading on this check the article Broken English by a US research group which gives an interesting outside perspective into the scandal and UK personal pensions in general.
More bad news about pensions came when it was revealed that the Mirror Group Pension fund had been plundered illegally by the business “tycoon” Robert Maxwell.
Workers who saved for years have got reduced pensions as a result and several years on, none of the highly paid professionals who were supposed to be taking responsibility for the security of the pension fund has been significantly punished.
National Bus Company
In addition there have been other bad stories which have continued to tarnish the subject of pensions in the mind of the public e.g. the former publicly owned National Bus Company which was sold off by the Conservative government who then allowed its pension fund surplus to be counted as an asset of the privatised company.
In other words this benefited the shareholders and not the staff – whose money had built up the pension fund.
The continued efforts of the workers to have this overturned has led to a steady stream of news about it over the years.
Recently one of the most well respected pension providers, Equitable Life, has been brought to its knees when it reneged on its promise to pay guaranteed annuities to its members who paid over the odds for them.
Despite reportedly being aware for years of the looming problem ie that it would not be able to meet its commitments the only action taken by anyone responsible was to pay huge sums to defend itself against its disgruntled members who had taken it all the way to the highest court in the country, the House of Lords.
It lost the case but there are no winners.
The savers have lost out hugely and at the time of writing it seems clear that Noo Labour is determined to avoid any compensation.
It now seems that Equitable Life may go bankrupt at any time. The new board of Directors is apparently suing the former directors who it holds responsible.
With all the information we’re putting out it’s unlikely that we’ll get round to updating this section so for further info on this look in Google for press mentions of the sorry saga.
Income Drawdown controversy
Despite all the publicity about the “personal pensions scandal” there are now concerns about income draw down policies and pension top up plans.
Income draw down is a highly specialised part of the pensions market and is relatively new, having only been introduced in 1995.
On retirement, instead of buying an annuity you have the option to “draw down” an income directly from your pension fund while leaving the remainder invested. With annuity rates being so low in recent years people were encouraged to think that income draw down was a solution.
But its main attraction is the death benefit situation – whereby you can pass the pension fund on to your loved ones – unlike buying an annuity where you have already “traded it in” for a regular payment.
In any event, by the time you are 75 you will have had to buy an annuity. But if you have meanwhile been taking significant sums from your pension fund, (i.e. through income drawdown) and returns from your investments are insufficient, this means your annuity could be much lower than if you had brought it straight away.
During 1999 the PIA carried out inspection visits to a number of firms and found their admin. records were so poor that it was unable to verify that all sales of income draw down products were made in the best interests of the clients.
While it eventually chose not to discipline anybody it issued a warning that advisors and product providers had to improve things.
FSAVCs Scandal (Free standing additional voluntary contributions).
These are extra payments made by a saver into their current pension schemes and have reportedly been sold when AVCs would have been a better option.
In 1999 the regulator ordered an investigation into 10% of sales in the previous decade. While this issue is seen as highly debatable and much less obviously mis selling than the major selling scandal (i.e. getting people out of company pensions into personal pensions) it just goes to show that you have to be very careful when buying financial products in the good old UK.
SERPS “mis selling scandal”
This hit the headlines in March 2000. Basically SERPS was changed in the 80’s by the Conservative government, including the loss of full SERPS entitlement to a surviving spouse.
This is now cut to half of what the deceased was originally entitled to. Unfortunately the DSS kept forgetting to tell anyone of this change – despite the deliberate delay (from the mid 80s until 2000) “to get people used to the idea”.
So for all those who happily thought there was no need to make extra savings for when they died, their spouses will now be worse off. The cost of rectifying this is being placed at £8 billion. Oops.
Initially it looked as if the only pensioners who’d get any compensation were those who asked specifically about what would happen to their spouses re SERPs if they died and COULD PROVE they were misled by the DSS.
However, the Labour government has announced a compensation scheme for those affected.
This is the latest lesson in the importance of how you must GET IT IN WRITING and keep it filed away.
Who can you trust?
You cannot simply rely on the regulators to protect you.
The pension selling scandals have shown that it takes them quite some time to wake up to the problem and even longer to do something about it. Eventual compensation takes years. Even if you have a strong case it’s not guaranteed – as with the SERPS case above.
The best thing to do is to RELY ON YOURSELF.
Make sure that you are taking the right advice and that you understand what you are buying. Use your common-sense e.g. spread your nest eggs around different baskets and so on.
Then GET IT IN WRITING.
Phone calls and words may not be good enough as evidence several years later. Keep a record of the process. Even if it’s rough notes of phone calls etc KEEP A RECORD OF THE PROCESS AND KEEP IT SAFE
Pick an IFA carefully and arm yourself with the basics available from sources like this website.
The best thing to do is to make sure that you are taking the right advice and that you understand what you are buying.
Remember that the basis of English Law in such matters is Caveat Emptor – meaning BUYER BEWARE. Get the picture?