According to figures released by the Financial Services Compensation Scheme (FSCS), compensation pay outs to savers badly advised to transfer money away from defined benefit (DB) pensions have doubled over the past two years. The figures reveal pension mis-selling claims reached a new high of £40m in 2018, compared to £37.5m in 2017 and £20m in 2016. Over a similar three-year period, pension transfer activity has also risen from £5.4bn in 2014 to £37bn in 2017. It seems of little coincidence that the increase in pay outs has also spiked during this window.
Poor financial advice
So what is the reason for this huge increase in such a short space of time? The figures are illustrative of the poor guidance being provided by a growing number of financial advisors, leading to people losing out on thousands of hard-earned pounds.
Since the government introduced the pension freedoms reforms in 2015, the amount of DB transfers have continued to grow exponentially. The reforms enabled savers to access their funds in any way they wished from age 55, although DB pension savers were not afforded the same level of freedom. If their pot was higher than the £30,000 minimum threshold, they were required to seek advice to convert their pension. However, in some cases it has been reported that some consumers were being asked to seek advice even if the pension was worth less than the minimum amount.
Without clarity provided about their available options and what would work best for them, consumers are being advised to withdraw large amounts away from their benefits, unaware of the financial consequences it could have. The FSCS figures state that 30% of pension drawdowns are believed to have been received without proper financial advice being provided. And those who did seek advice were often provided with information that was either wrong or unsuitable for their situation.
Perhaps more worryingly, the FSCS say that mis-selling is not just down to an increasing number of unregulated advisors, but also those that are regulated. In an additional interim report released by the Financial Conduct Authority (FCA), they stated that less than 50% of advice reviewed by the governing body was deemed as appropriate and suitable. They added that they found the low level of suitable pension transfer advice unacceptable and expect firms to take action to redress the issue.
Why was the decision made?
Earlier in the year, London Capital & Finance collapsed. It emerged that the firm had been selling risky mini-bonds, and when they went into administration, they owed £236 million to over 11,000 clients.
The FCA’s handling of the situation was heavily criticised by both the clients and the government, as it was found that the regulator had been aware of the issue three years previously, but hadn’t done anything about it.
As such, it was decided that the promotion of mini-bonds should be banned for a period of 12 months initially, as they’re considered too problematic for casual investors. Andrew Bailey also adds: “This risk is heightened by the arrival of the ISA season at the end of the tax year, since it is quite common for mini-bonds to have ISA status, or to claim such even though they do not have the status.”
How to reclaim lost money
Anyone who believes they have been mis-sold an investment should urgently check to see if they are able to reclaim some of it back. A government fund of £120m exists to provide compensation to consumers who are found to have been misled. The FCA report that as many as one in eight savers believe they have received bad advice and are advising consumers to raise a complaint as soon as they are doubtful of any wrongdoing.
A new limit of £85,000 was introduced by FSCS on 1st April 2019, as the number of claims continue to increase. If the claim is higher than this amount, the Financial Ombudsman can raise the limit, depending on when the case was brought to them. Complaints raised on or after April 1st 2019 have an upper limit of £350,000, with anything before that limited to £160,000.
If you suspect that you may have been mis-sold a Pension in the past (for example, if your financial advisor failed to properly detail the risks involved) then you could be entitled to compensation. If this is the case, get in touch with Goodwin Barrett to find out how we can help – on 0808 163 1659 or email firstname.lastname@example.org .