Compensation for opting out of SERPS

Liz_Arnold

Today my husband received an unsolicited call from a company advising him that as he had opted out of SERPS when he first took out a private pension with Barclays he could be entitled to compensation of up to £1500 per year for the 14 years that he was paying into the pension.
This was on the basis that he had been misadvised about opting out of SERPS at the time and as the pension had underperformed as with most pensions he would have been better off staying in SERPS.
Alarm bells rang as soon as the company asked for £495 up front for administration fees for setting up the claim and they would then take 15% of any compensation recovered.
They kindly advised my husband that he could, of course, contact any other company that could do this on a 'no win no fee' basis but they would typically ask for 30% of the compensation.
Has anyone else heard about this possible compensation and how to go about claiming it?
Thanks
Liz

dunstonh

Morgan Green by any chance?

Its a scam to get money out of you. £495 up front and even if you are succesful in claiming then any redress would be paid into the pension. Not your pocket. You would then have to find the 30% to pay them out of your own savings. Success rate is low as well which is why they want the money up front.

Being contracted out of Serps is not a mis-sale. 1/3rd of people contracted out at this time are financially better off (and that figure is increasing again. It was 100% in 1996 down to virtually zero in 2002 but up to 2/3rds again now). There are pros and cons to contracting out.

as the pension had underperformed as with most pensions he would have been better off staying in SERPS.

This is why companies like this should be banned. They are not allowed to give financial advice as they are not regulated by the FSA. They havent written to the provider and obtained details. They havent ascertained whether contracting out is good or bad for the client in question but automatically tell them they have been mis-sold so they can get money off them.

ManAtHome

I'd ask them to furnish the documentation proving he'd been mis-advised...

(Actually I'd just ignore the scammers). Would be fun to get a letter from them making the same claims, then pass it on to your pension advisors and/or company though - sounds potentially libellous to me?

DH - do you know if anyone has won a mis-selling (guess there must be some if success rate is low rather than non-existent). Do they pass your contracted-out pension pot to that nice Mr Brown and click up the numbers in the State scheme or pay extra into the "mis-sold" product (which would seem a bit strange to me)?

Really out of interest only - I have a contracted-out pot, went back in a few ago - dunno whether it'll be better or worse until I hit 65, so plenty of time for that nice Mr Brown to make contracting back in a mis-selling case....(lol).

shaun_Worrall

Tekram Goldberg claim to provide this service for an initial fee and 12 percent of the final compensation plus VAT. They claim that you will receive this compensation direct.

dunstonh

Initial fee plus VAT and 12% plus VAT for something you can do for free in just a few minutes.

Tekram Goldberg are another company that is cold calling with this sort of scam. There has been posts on them as well (not positive ones either). If they are so confident that it was mis-sold (despite not knowing any of the facts and not being authorised to give advice) then why are they charging an upfront fee? They dont with endowments where it is much easier to get redress.

Pension redress has historically been paid into pension plans in the form of enhanced contribution.

The Financial Services Authority (previously known as the Securities and Investments Board) laid down three main options for providing redress:
Reinstatement - This was stated to be the most obvious and transparent method of rectifying any actual or potential harm. This is a means of paying a sum of money to the pension scheme (of which the investor should have been a member) such that the investor now finds himself or herself in exactly the same position as he or she should have been in. However it does have its problems:

• Some schemes will not permit reinstatement. This is a decision for the scheme's sponsor or the trustees of the scheme (depending on the provisions of the scheme rules) and they have to consider whether it is reasonable for them to accept an open liability into their scheme.
• To achieve full reinstatement will involve the transfer of pension benefits that the investor has accrued, up to the date that redress is provided, to the scheme, but sometimes the rules do not permit these benefits to be transferred. For example if a person has accrued a State Earnings Related Pension (SERPS) instead of being in a contracted out occupational pension scheme, it is not possible to transfer this SERPS pension into the occupational pension scheme.
• Whilst benefits form one part of the pensions equation, contributions form the other. If the investor would have been required to pay more, by means of employee pension contributions, to the scheme being reinstated into than he or she has actually paid, then there needs to be an offset from redress to allow for this difference in contributions but unless the investor now pays that difference in cash (a very unlikely scenario) he will need to receive a reduced pension.
• An assessment of loss is recommended to check firstly that all relevant components of loss or offset have been adequately considered and secondly that any quotation of the reinstatement costs being requested by the scheme is not unreasonably high. Where an unreasonably high cost is quoted, the provider of redress may be entitled to seek an alternative, and cheaper, form of redress than reinstatement.

Policy augmentation - This is a means whereby the investor's existing pension arrangements, albeit flawed, are augmented by payment of an amount into the pension arrangements equal to the financial loss that he or she has suffered. The advantage with this approach is that it is, mechanically, a straightforward means of paying redress but it too has its disadvantages:

• Depending on the nature of the underlying contract, it may not be able to guarantee that the final benefits will provide an exact match with those benefits the investor should have had.
• A technical and detailed loss calculation will be required, placing actuarial values on the benefits and contributions that would have been payable against those actually payable allowing suitably for the fact that the benefits being compared do not have the same form and are subject to differences in the "risk" that the eventual benefits will vary from the current value.

Cash and pension - Where an investor has passed retirement age and it is clear that he or she is receiving less in pension than had he or she been correctly advised, an assessment can be made of the lost pension instalments received to date and of those going forward. The accumulated value of differences in payment to date would be paid as cash, and an additional pension can be purchased to cover the shortfall in future pension. As with policy augmentation there are disadvantages:

• a detailed calculation will be required to ensure that all the relevant components of loss have been included
• it will not always be possible to purchase a new pension that, combined with the existing pension already in payment, exactly matches the benefits that would have been paid - in both form and the "risk" that the future payments will vary from the current value.

These three principal forms of redress were brought about by the industry-wide review of personal pensions.
The industry-wide review is now over, but this range of redress options (not all options being appropriate in any particular situation) is commonly understood to set an important precedent for settling future pensions mis-selling cases. It can be seen that in all the options the basis of redress is pensions based - even policy augmentation will result in ultimate benefits being subject to pensions legislation and benefits will need to be paid out in pension form.

ManAtHome

I can understand the FSA stuff in relation to dropping out of an employer's scheme and missing out on company funding, but still can't get my head round opting-out mis-selling (mind you, couldn't agree with a lot of the under-performance "mis-selling" of endowment mortgages either).

dunstonh

Endowments were a bit easier as it was nil risk vs investment risk. Contracting out though is a different matter as its legislative risk vs investment risk. The Govt have already reduced contracted in benefits 3 times and the increase in state retirement age is a 4th. They could choose to abolish it later without giving anyone a penny. A move to a single state pension would take of that. Contacted out benefits have never been retrospectively clawed back and it would require primary legislation for that to occur. Highly unlikely considering the devestation it would create to the stockmarket and the knock on effects of that. So, its not a nil risk vs investment risk issue. You cant claim that you wanted a nil risk option as there isnt one.

Whilst a fair chunk of contracting out applications were not sold compliantly by todays standards, it doesnt make the decision bad advice. I think the FSA is right to look at those contracted out outside of the pivotal ages and leave it at that.

If you ask someone do you want your pension at age 68 with your state pension or have access to it from age 55 onwards, many will say 55 onwards.

If you ask them if they want 25% tax free lump sum from contracted out benefits or nothing from contracted in, most will go with the lump sum option.

If you say that there maybe a 50/50 chance of having higher or lower income than being contracted in, most will take the punt if they can get a lump sum out of it and take benefits early.

The last calculation on who was worse off showed the figure was around £2-£4 a week worse off on average than contracting in. Thats not a lot considering that the figures were published in August 2005 and still suffering from the stockmarket drop. It would be interesting to see what the figures are now.

It could be that the FSA have delayed their ruling because the majority could now be better off from contracting out. If it was 100% better off in 1996, virtually all worse off in 2002 and 33% better off in 2005, then it could be past the 50% mark now with the last 2 years stockmarket gains.

ManAtHome

Mine's with the Pru and seems to be doing Ok. I'm sure the notes at the time must have been reasonably balanced - I wouldn't have gone for a "loadsamoney" approach.

Maybe just me - have made some good and bad investment decisions along the way, but it's always been my decision in the end - one man's mis-bought is another man's mis-sold I suppose...

jamesd

Liz Arnold, he'd only get compensation if the choice to opt out was wrong. It probably wasn't because at the time he did it the government contributions were weighted to strongly favor opting out.

Whether the pension itself did well or badly isn't a factor, just whether opting out was a sensible choice. It's unlikely that he was wrongly advised.

The company will make most of its money on the fees it gets up front and it's unlikely that the claim will succeed and if it does that there could be enough compensation due to recover the fee.

For the pension itself the choice of investments is key. If he still has the pension it's worth reviewing that, as it is with any other pensions either of you has.

defender_of_the_weak

As has been posted elsewhere the question of contracting out is far from simple and cannot be decided on a phone call from Spain. If the OP is unhappy with the approach, then report them to the regulator. The success rate is about 35-40% which is why some companies want to charge up front.

As of Monday they should also give you a statutory 14 day cooling off period by which you can withdraw your consent for them to proceed and can only claim 'reasonable costs' for work undertaken if a client subsequently withddraws the complaint. Clearly the up front companies don't like this but guess what

As of today, neither Morgan Green or Tekram Goldberg are regulated

With reference to the 'typical 30% this again is untrue as we only charge 10% plus VAT. Having spent half an hour last week telling the truth to a prospective client (when she had been promised all the gold she could eat by a Tekram Goldberg saleperson) nothing surprises me.

dunstonh

In my industry we have some bad apples who create a bad image for the rest of us. Companies like Morgan Green and Tekram Goldberg are the bad apples of the claims companies world.