Help/advice? Confused about mis-selling!

el_coucho

I'm not sure who to address this question to - can anyone point me in the right direction?
I bought a house in 1994 and sold it in 2003. I now believe I was mis-sold the mortgage; it was a pensions mortgage but it would only have covered paying off the mortgage, not enough to buy an annuity with. I was also mis-sold insurance at the same time (I was told it was compulsory).
The financial advisor/mortgage broker was attached to the estate agents and she arranged the mortgage for me with the Leeds Permanent Building Society (now part of the Halifax). The pension was arranged with Scottish Widows (now part of Prudential). Who would I address my claim to - the Halifax? Or is this so long ago that it is not worth pursuing?
NB I paid off the mortgage when I sold the house and went abroad, I kept up the pension payments but this will not provide me with a decent pension.

Thrugelmir

el_coucho wrote: »

I kept up the pension payments but this will not provide me with a decent pension.

Did you increase your contributions in line with inflation or as your pay increased?

holly_hobby

Pension mortgages work by using the tax free cash available at retirement(25% of the fund), to repay the mge debt.

The remaining pension pot is then vested with the original provider or you could purchase an annuity from an alternative firm (termed as an Open Market Option) to provider your pension.

Pension mortgages were seen as a very tax efficient (although could be expensive) way of purchasing a property - due to the fact that there was tax relief on your contributions at the highest rate, although dependant upon age of entry and NRA, the mge term and incurred interest could end up being in excess of 30 yrs (with min pension vesting age of 50) - notwithstanding possible short funding issues, in relation to age related annual contribution caps and contributions v relevant earnings regs.

Question x 2 ...

Why do you believe you were mis-sold ?

Do you believe you were mis-sold the pension, being advised to use a pension as a repayment vehicle for your interest only mge, or both ?
What compulsory insurance do you believe you were also mis-sold ?

The performance of the pension has nothing to do with the suitability of its sale (as you can not be compensated for loss of expectation).

If you wanted to complain it would be to the estate agent whom sold you the pension, or the insurance company if the EA was an Appointed Representative of one provider. If no longer trading, it would be to via the Financial Svc Compensation Scheme - compensation would of course be based on several factors, the leading one whether the sale was appropriate and suitable at the time.

Bit more meat on the bones if you can.

Hope this helps

Holly

kingstreet

Are you sure the pension was Scot Widows? That's a part of Lloyds Bank Group. Prudential purchased Scottish Amicable.

el_coucho

Thanks for helping with this.
Yes, you are right, Kingstreet, it was with Scottish Amicable, not Scottish Widows.

I didn't increase the payments in line with inflation and my salary level as fluctuated. When I asked to increase the payments I was told by Prudential that I would have to stop that pension and start a new pension.

I don't know about the insurance - I was asked to take out life insurance, which I turned down as I have no dependents. At the last minute I was told that I had to have insurance and when I queried it, I was told that it was compulsory and if I pursued this matter it would delay exchanging on the house sale, which I didn't want. I no longer have all the paperwork!

I worked for a charity at the time which offered no pension provision, so starting a pension was a good idea but the pension was only set up to achieve £45k to pay off the mortgage. Even if it had out-performed expectations it would never have provided enough to also provide a pension as well as paying off the mortgage. I was 26 at the time, with a plan to retire at 60 (!!)

I feel stupid that I didn't understand any of this at the time and I'm not sure I know much more now!

kingstreet

The minimum target projected retirement fund would need to be four times the mortgage amount, assuming you wanted to use the whole lump sum on mortgage repayment.

The remainder would be used to pay your retirement benefits.

A pension plan is a good way of repaying a mortgage as the contributions attract tax relief and the return on the fund's investments is tax exempt.

It is imperative that contributions keep pace with inflation at the very least, earnings would be a better link. This will ensure your plan maintains its potential purchasing power in thirty or forty years' time.

Pension term assurance, the life cover which could be written under pension rules or a standard term assurance, would probably be compulsory for an interest-only mortgage at that time.

For someone not in an employer's scheme and with no option of joining one, a personal or a later stakeholder pension plan was a good idea. Often, these were used to allow the employee to contract out of SERPS or the State Second Pension. The ability to use the tax free cash to repay a mortgage was a useful by-product.

TBH you'd have to have some pretty good evidence of why the adviser chose this route and why it did not match your needs before you'll make a successful complaint. As HH says, performance of investments does not make the methodology wrong. Can you prove the adviser assumed 100% of the retirement fund to repay the mortgage, not the maximum permitted 25%?

holly_hobby

el_coucho wrote: »

I didn't increase the payments in line with inflation and my salary level as fluctuated. When I asked to increase the payments I was told by Prudential that I would have to stop that pension and start a new pension.

That would be a svc issue with Pru (as was).

el_coucho wrote: »

I don't know about the insurance - I was asked to take out life insurance, which I turned down as I have no dependents. At the last minute I was told that I had to have insurance and when I queried it, I was told that it was compulsory and if I pursued this matter it would delay exchanging on the house sale, which I didn't want. I no longer have all the paperwork!

In 1994 from my own memory it was not uncommon for life cover to cover the mge debt, to be reqd by the lender - although of course now a days thats a no-no.

Life cover would have certainly been un-necessary IF you had no dependants AND/OR you did not wish to bequeath your property to anyone on your death.

el_coucho wrote: »

I worked for a charity at the time which offered no pension provision, so starting a pension was a good idea but the pension was only set up to achieve £45k to pay off the mortgage. Even if it had out-performed expectations it would never have provided enough to also provide a pension as well as paying off the mortgage. I was 26 at the time, with a plan to retire at 60 (!!)

I feel stupid that I didn't understand any of this at the time and I'm not sure I know much more now!

Ok - mge advice was not regulagted until Oct 2004 - so advice as to take interest only over payment etc was not regualted.

However, lets look at the bones..

Ok - you were single, had no dependants, and had no access to an occupation pension scheme at the time of the advice.

You elected to take an interest only (IO) mge, did the adviser discuss alternative repayment vehicles as well as the pension ?

If they did, and you chose a pension (the tax advantages alongside need probably being the driving factors for you), than as you had no occupational scheme, the sale of a personal pension (PP) to you was not inappropriate/mis-sold, as there was a perceived need in your portfolio for this - so this would have been a justified sale.

Accordingly as you had a PP need and a mge repayment need, it was elected to effect a pension mge (which is just an interest only mge, with the repayment coming from the TFC element when it vested).

Your IO mge was 45k, which you say the TFC at 25% from the pension fund was equal to and designed to pay - you say it was ONLY written to repay the mge debt at 45k - was this by design (didn't want any more) or becuase you couldn't afford a higher payment to achieve higher (estimated !) results (or couldn't pay a higher invesment due to HRMC contribution regs).

As I say, following any TC payment, its the remainer of the fund that is commuted to pension payments, in 1994 at the time you effected this (which is pre fairly recent pension simplificiation implementation), contributions were capped annually according to your age band and a max % of your income (not withstanding carry back/fwd regs that were applicable until recent changes).

As it stands the 45k TFC will not have to be taken from the fund for mge purposes, so the fund for communtation is actually larger than it would have been if you still held your 45k IO mge (which was redeemed in 2003).

Not sure what the complaint is really ?

Is it that there isn't enough in the pot for a comfortable pension, due to inadequate investment or performance (which fundamentally it is the individuals duty to ensure remains relative to requirements). And thats without getting into the fact as to if you should still have been paying it whilst abroad with regards to HMRC relevant earnings regs.

Hope this helps

Holly

kingstreet

Sorry, I forgot to add that Pru were probably suggesting starting a lower charging stakeholder plan when they said the existing personal pension plan couldn't, or wouldn't, be increasable.

holly_hobby

kingstreet wrote: »

Sorry, I forgot to add that Pru were probably suggesting starting a lower charging stakeholder plan when they said the existing personal pension plan couldn't, or wouldn't, be increasable.

Yep if you applied to increase contributions post 6.4.2001 this may have been the basis of their comments.

H

el_coucho

Thanks for all your comments - they have been very helpful.