FSA : Contracting out mi-sales not found

dunstonh

The FSA have completed the two year review on contracted out and have reported that there is no evidence of widespread mis-selling and that only 120,000 people contracted out outside of the pivotal ages (thats the usual ages where it was best to contract out). It will not be asking companies to investigate those 120,000 as there was no regulatory requirement to have a pivotal age set and people may still choose to contract out outside of the pivotal age (as there are some advantages to contracting out)

It was also emphasised that the review was done based on the regulatory position at the time contracting out took place. We all know that the advice standards of 10-20 years ago were nothing like what we have today and most sales of 20 years ago wouldnt be compliant by today's standards. However, they were compliant at the time.

So, it looks like this is being put to bed.

EdInvestor

Independent


You can't ignore this pensions mess

Barely a month seems to have gone by over the past few years when the financial services industry has not been fighting off allegations of yet another mis-selling scandal. This week, the confusion surrounding the State Second Pension (S2P) (or Serps, as it used to be known) was back in the headlines, as the Financial Services Authority revealed that as many as 120,000 people may have been mis-sold....

Many advisers did not warn clients of the investment risk in contracting out of Serps, or advise of the risk that future Governments could cut back rebates. Those who were unlucky enough to have invested their S2P rebates in a poorly performing private pension will find that poor returns and charges have eaten up just about all of their S2P contributions.

But the most alarming part of the story is the attitude of the Financial Services Authority, whose principal remit is supposed to be consumer protection. After concluding its two-year inquiry into the market this week, and conceding that thousands of people may have been mis-sold, it said it had decided not to take its investigations any further.

Which?, the consumer group, estimates that as many as 4.5 million people could in fact be worse off in retirement because they were wrongly railroaded into contracting out of S2P – more than enough to merit some affirmative action. But, regardless of the actual number, the regulator needs to be seen to be taking control of this mess to restore confidence in the savings industry, not washing its hands of it.

Indeed so.

dunstonh

What a completely useless article. It doesnt say anything and twists a few bits.

But the most alarming part of the story is the attitude of the Financial Services Authority, whose principal remit is supposed to be consumer protection. After concluding its two-year inquiry into the market this week, and conceding that thousands of people may have been mis-sold, it said it had decided not to take its investigations any further.

120,000 were identified as being contracted out outside of the typical recommended age. That is around 1.5% of all people that contracted out. So, 98.5% contracted out within the ages that were deemed best to do so. A failure rate of 1.5% is very low.

Which?, the consumer group, estimates that as many as 4.5 million people could in fact be worse off in retirement because they were wrongly railroaded into contracting out of S2P – more than enough to merit some affirmative action. But, regardless of the actual number, the regulator needs to be seen to be taking control of this mess to restore confidence in the savings industry, not washing its hands of it.

It is estimated that around 50% are financially better off by contracting out based on current returns. That is an improvement from 2005 when it was 33% better off. The recovering stockmarket being the main thing. Plus in 1996, 100% were better off (source: SIB). That was before the stockmarket crash and before Labour started reducing the rebates.

A lot of people dont care if they are £4.00 a week worse off (published figure in 2005 - one that would have improved with the stockmarket recovery). The option to take 25% as a lump sum and take benefits before state retirement age and concerns over Govt treatment of S2P (remembering the Govt has reduced the contracted in benefits 3 times already and has proposed a 4th reduction) means that many feel that even if it is less, it's better in their hands than the Govts.

It was a problem issue to look at because there is no risk free option and a number of the problems have occured because of the changes made by the Govt upto 10 years after many contracted out.

If the FSA had ruled a mis-sale situation and redress became payable, what would happen if the Govt killed S2P/Serps later on? You would have all the people that contracted in then claiming they were mis-advised and should have been told to contract out.

With the split between who is worse off and better off at around 50% each and the difference only a couple of pounds a week worse off for those that are financially worse off and that for the last 5 years (sometimes longer) providers write to individuals each year asking them if they want to contract in (meaning that period couldnt be taken into account and that is the bulk of the period where people lost money) then you can see that the decision from the FSA was sensible.

The FSA article is at:

http://www.fsa.gov.uk/pages/Library/Communication/PR/2007/059.shtml

EdInvestor

Yes but how is it sensible to make this kind of half baked statement, when we all know there are people like Morgan Green going around stirring people up to make complaints?

Surge of calls to Ombudsman over SERPS misselling

If there are only a few people affected, surely the FSA would be better to require the firms/IFAs involved to identify the cases and provide redress, as has been done in the past with pensions misselling for instance?

Instead the FSA has come up with a number which sounds quite large, and a requirement to DIY in making a case, difficult for the average person to do.

Isn't this just going to encourage the Morgan Green scamsters?

dunstonh

Yes but how is it sensible to make this kind of half baked statement, when we all know there are people like Morgan Green going around stirring people up to make complaints?

That is a different issue though. Unscrupulous claims companies are not FSA regulated and at this time no "bad" claims company has yet to have action taken against them so some think they can get away with saying what they like. It doesnt matter how bad we say Morgan Green are, the FSA has no power over them.

If there are only a few people affected, surely the FSA would be better to require the firms/IFAs involved to identify the cases and provide redress, as has been done in the past with pensions misselling for instance?

They havent said these 120,000 have been mis-sold. They said that they were outside of the age groups usually suggested but the age groups themselves were typically chosen be providers and not a rule set by the FSA. So, if someone did contract out outside of those ages, it doesnt make it a mis-sale.

The difficulty or proving a mis-sale is going to be very hard for any party. Its not as straight forward as endowments where it was no risk vs risk. This is risk vs risk with both sides having clear pros and cons and the end result being one that no-one knows which will be best.

Plus the FSA made it clear that they looked at it based on the rules and regulations in place at the time of contracting out. We know that means that most contracting out sales wouldnt pass todays standards but they did pass what was right at the time.

Isn't this just going to encourage the Morgan Green scamsters?

The outcome wouldnt deter them regardless of what the FSA said. If you are scamming, you will continue to scam until someone shuts you down.

I'm surprised Ed that you havent put your cynical hat on and said that because the Govt have a lot to do with why contracting hasnt been a 100% success, that is why the FSA came out with their decision.

Conservatives in the 80s ran adverts on telly and paid bonuses to those that contracted out. Then you had Labour kill the tax credit and reduce the rebates. In 1996 everyone contracted out was financially better off. Labour get into power and by 2002, nearly everyone contracting out was worse off. The stockmarket crash and recovery caused a chunk of that but the reduced rebate has been the real killer.

EdInvestor

Of course the same situation will apply as with endowments - the companies will have destroyed the files and won't be able to defend their position.

So if you think you may have been missold it's worth doing a bit of resear ch IMHO - bearing in mind you'll only get redress money into the pension, not cash in hand.

The main problem I'd see is actually determining if you have made a loss.Getting a projection of your likely PR pension from the insurer is no problem, but will the Pension Service tell you what your S2P would have be been if you hadn't contracted out?

Has anyone asked?