Pension complaints - what sort of things are considered higher risk of complaint

dunstonh

I thought I would post the following as it gives an indication of the sorts of transactions that are going through as upheld complaints or are subject to more complaints than is considered usual. We get given this information to allow us to be pro-active in making sure we dont make the same mistakes. i.e. know where the problems are and make sure you cover your backside!!!

Knowing the high risk transaction areas and the sorts of areas where complaints are going through can also help you identify potential issues with advice you have been given as well. Remember that complaints and bad advice accounts for a very small minority of cases. So, dont assume that if you have done a transaction that is mentioned, that it is bad advice. These are just an indication of where the current complaints are and that you should be on guard (as should the adviser).

Pensions
Pension complaints usually focus on:
• Occupational Transfers and opt-outs - even though TVAS calculations and additional questionnaires are used, there are often contradictory details in the file. For example:

• A balanced attitude to risk, but a desire to keep the pension secure

• No requirement to provide benefits for dependants, even though the client does have dependents.

The FOS will usually say that this is enough to show the complainant was confused by the advice given.

• SIPPs - the main problem occurs where the recommended funds don't match the client's attitude to risk or where personal pensions or stakeholder pensions would have been the better option (i.e. same or similar funds available but at lower cost on a stakeholder/personal pension).

• Contracting out of SERPs - some claims handlers have picked up on these cases. In the main the only complaints being upheld are those outside of pivotal age or where funds don'tmatch the client's attitude to risk.

• Income drawdown - problems occur in the following situations:

• Where the fund is small;

• It is the only pension of the complainant;

• The level of fund risk doesn't suit the complainant's situation or previous exposure to risk;

• The client is very cautious and the recommended funds are unlikely to show the returns needed to support the fund level while an income is being taken.

This is clearly an emotive issue at a time of life where the client is unlikely to obtain any further pension funds. Any inconsistencies should be fully discussed and documented.

• Mortgage related pension schemes - The issues are similar to those of endowment
complaints. In addition, issues arise where the complainant claims they didn't understand that using the pension fund to repay the mortgage would reduce their pension.

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I think the main issues there which we often see posts on here are income drawdown and contracting out of SERPs.

A few of the board members promote income drawdown as being the solution for everyone. However, you can see that it is considered a high risk issue. Particulary if it is your only source of income or the fund is small (typically less than £100k). If these cases are likely to be upheld by the FOS when advice is given then you have to consider that if you going DIY and you have a small fund or its your only income, are you doing the right thing.

Claims companies cold calling to encourage you to complain about contracting out but pay a fee up front seems to be a waste of time. You are almost certainly kissing goodbye to your money if you were young when you contracted out (the pivotal age was as high as 53 for those earning over £10k a year).

peterg1965

Dunstonh, great post thank you. Just the sort of information that is useful when making some significant financial decisions and putting your financial future in the hands of one individual, ie an IFA!

EdInvestor

dunstonh wrote: »

A few of the board members promote income drawdown as being the solution for everyone. However, you can see that it is considered a high risk issue. Particulary if it is your only source of income or the fund is small (typically less than £100k). If these cases are likely to be upheld by the FOS when advice is given then you have to consider that if you going DIY and you have a small fund or its your only income, are you doing the right thing.

Just to put this into perspective, in its most recent annual report the FOS states it looked at a total of 112,923 complaints of which mortgage and savings endowments made up 65%.Investment bonds were second at 4% and personal pensions, which includes income drawdown, was next at 3.6%.

The 516 complaints about drawdown made up 0.4% of the total complaints to the FOS, a number which, although rising due to a large increase in drawdown sales, remains vanishingly small.

Readers will be aware that DIY drawdown using low cost prpoviders and direct investment has the potential to reduce considerably the risks of drawdown, by cutting fees and charges paid to IFAs and fund managers which eat into fund returns and cause depletion of the capital.

dunstonh

Readers will be aware that DIY drawdown using low cost prpoviders and direct investment has the potential to reduce considerably the risks of drawdown, by cutting fees and charges paid to IFAs and fund managers which eat into fund returns and cause depletion of the capital.

Which is complete rubbish as there are no fund based discounts on SIPPs so using investment funds in these so called low cost providers doesnt actually save a lot of money over advice channels.

The reason there isnt a lot of complaints in recent years is that there hasnt been any years of poor performance. If endowments hadnt suffered during the crash years, then people wouldnt have complained. Expect the number of drawdown complaints to increase significantly after a crash occurs as its only when people lose money that they complain. Plus, drawdown is still a minority option and its only really post Apr 06 rules that have opened it up more. 18 months isnt a long time for complaints to start.

EdInvestor

dunstonh wrote: »

The reason there isnt a lot of complaints in recent years is that there hasnt been in years of poor performance. Plus, drawdown is still a minority option and its only really post Apr 06 rules that have opened it up more. 18 months isnt a long time for complaints to start.

Quite so.Then why make a misleading post suggesting that it is a focus of complaints when it isn't?

It appears to be just part of your agenda to convince people they are too thick to manage their own financial affairs but need to pay lots of money for advice from people like yourself.

dunstonh

Quite so.Then why make a misleading post suggesting that it is a focus of complaints when it isn't?

It is not misleading. It was copy and pasted from the complaints handlers and reflects that many people who invested earlier in the year have seen losses and they are seeing a rise in complaints.

It appears to be just part of your agenda to convince people they are too thick to manage their own financial affairs but need to pay lots of money for advice from people like yourself.

And what about your agenda that everyone should do drawdown without knowing what they are doing and the risks involved? My charges are not a lot of money but why let that spoil your anti advice crusade.

If people want to go DIY it doesnt bother me one bit. I can only do so much work and I turn business away as I dont want it or dont have the time. It is a shame that you are telling people to disregard warnings from the regulator and claims handlers about risk. I think most posters would prefer a more balanced approach of knowing the advantages AND disadvantages. The latter you so often leave out.

cheerfulcat

EdInvestor wrote: »

It appears to be just part of your agenda to convince people they are too thick to manage their own financial affairs but need to pay lots of money for advice from people like yourself.

Ed, unfortunately an awful lot of people do fall in to this category...and as dh points out, no-one complains when they've made money.

Debt_Free_Chick

EdInvestor wrote: »

Just to put this into perspective, in its most recent annual report the FOS states it looked at a total of 112,923 complaints of which mortgage and savings endowments made up 65%.Investment bonds were second at 4% and personal pensions, which includes income drawdown, was next at 3.6%.

Pension complaints handled by the FOS are low, because they pass just about all of them on to TPAS.

EdInvestor

http://www.pensionsadvisoryservice.org.uk/publications/tpas_reports/documents/AnnualReview0607.pdf

It's true that TPAS did handle nearly 7000 pension complaints last year, but most of them seem to relate to occupational or state pensions, which fall outside the FOS's jurisdiction.

There are some issues related to personal pensions maladministration, rather than misselling and a growing number involving the interaction of occ pensions and GPPs - one can see that's likely to be a growth area.

BTW, the TPAS is a recommended place to go for free impartial advice (and education) on pension issues, especially company pension problems.They have a high reputation

Debt_Free_Chick

The problem with the FOS system is that they tend to send very many complaints which ARE within their jurisdiction to TPAS first.

Many of them do relate to the selling of PPs - but there's often no case to answer, in which case the TPAS adviser simply explains this to the complainant.

These then become part of the TPAS statistics rather than the FOS statistics.

Of course, if there is a case to answer, the TPAS adviser will then send the case back to the FOS, in which case they do go onto the FOS statistics.

All in all, the FOS statistics on complaints made about PPs are distorted, as they exclude those that get referred to TPAS - but if the FOS did include them, they would be cases where the complaint was not upheld.

This referral back to TPAS is a bit of a pain to the TPAS advisers - assessing whether there is a case or not can be difficult without some knowledge of the regulation behind the sales of PPs. Many TPAS advisers are occupational pension scheme managers who have absolutely no experience in the selling regulations as they have never had to be registered under FSA..

Whilst the system is not perfect, it seems to work, somehow

EdInvestor

Debt_Free_Chick wrote: »

All in all, the FOS statistics on complaints made about PPs are distorted, as they exclude those that get referred to TPAS - but if the FOS did include them, they would be cases where the complaint was not upheld.

To get an overall picture it would be helpful if the TPAS could separate out complaints or queries which were FOS related, rather than company pension related, or where there was a joint jurisdiction.