e-mail Paul Lewis on paul@deadline.demon.co.uk
You may feel you have heard this story before. You would be right. The problem was recognised officially in the middle of 1994 and we first reported it in Saga Magazine in January 1995. But since then the companies involved have done very little. Figures produced by the Government show that the 24 companies who mis-sold the most pensions have only dealt with a fifth of the people in the priority categories. And only about a third who have been dealt with have been given compensation. Among the worst offenders are some big names - Abbey Life, Pearl, Sedgwick, Sun Life of Canada. The worst company of all in the figures published in August was Gan, a French owned insurer which has only managed to deal with 2 per cent of its priority cases for review.
By definition the priority groups contain mainly older people - they were given priority because there was less time to sort out their pension before they retired. But the insurance companies have now taken so long to sort things out that many people have already retired on pensions that are far less than they should have. Tragically, more people have died uncompensated than have been given redress for being sold the wrong pension. So the Government watchdog that controls the way financial products are sold - the Securities and Investments Board or SIB - has launched a major campaign to try to get the message through to people that they must respond to any communication from the company that sold them their personal pension. If they do not they could lose the chance of compensation for ever.
The wrong pension
Personal pensions were introduced in 1988. They were marketed by both the Government and insurance companies as a modern, portable alternative to a company pension. But personal pensions are really only suitable for people who cannot join a company pension scheme. For almost everyone else, a company scheme is the best choice. Unfortunately, many of the sales staff who sold personal pensions were badly trained and paid entirely on commission. So they often sold personal pensions to people for whom they were completely inappropriate.
Company pensions are better than personal pensions because the employer also pays into a company scheme but seldom pays into a personal pension. So more money goes into the pension. And in many cases a company scheme guarantees a pension linked to the pensioner's previous salary and may pay regular increases to take account of inflation. A personal pension never guarantees the benefits that will be paid and they may not rise with inflation.
So just about anyone who was in a company scheme and was persuaded to leave it for a personal pension plan was given the wrong advice and may have suffered a loss as a result. There are two other groups who were badly advised. Some people were persuaded not to join their company scheme in the first place but to take out a personal pension instead. That advice was always wrong. And people who left their job and then transferred their pension rights out of the company scheme into a personal pension also made the wrong decision. All three groups may now be due compensation.
It could be you
In order to fall within what are called the priority groups you must fulfil certain conditions. First you must have started a personal pension between April 29 1988 -- when the Financial Services Act came into force -- and 30 June 1994 before the new rules on how pensions should be sold began July 1 1994. Second you must have done one or more of the following
If you fall into one of these categories the you are a priority case and you should have heard from the company that now runs your personal pension plan. If you have not then you should contact the company at once and see what is happening. Part of the review is to ask you questions. So if you get a questionnaire from the company it is very important that you complete and return it as soon as possible. If you do not then the company may assume you do not want your case reviewed and you may lose your chance for compensation. Even if you are asked for the same information more than once it is vital that you do not ignore it. Always reply to letters promptly and keep a copy of your reply.
Some companies that were involved in selling personal pensions have now gone out of business. In that case - or if you just do not know how to contact the company - you should get in touch with the Personal Investment Authority pensions unit. They will make sure your case is looked at and pay any compensation that is due.
How much compensation
Not everyone will be offered compensation. The company may say that you were given proper and full advice and you nevertheless chose, for example, to leave you company scheme for a personal pension. You should never accept such a claim. Insist that you acted on advice from the sales person and that you consider them responsible for what you did.
In some cases the company may say that you were given bad advice but have not suffered a loss. That could happen if the personal pension you were sold was as good as the company scheme you left. Such cases should be very rare and you should always challenge this statement if it is made.
However, in most cases compensation will be offered. The company should put you back in the same position you were in before you took the bad advice. Ideally, it should get you reinstated into your company scheme and pay extra contributions into it to make sure your benefits will be the same as if you had never left it.
However, some company schemes may not allow you to rejoin retrospectively (though they should all allow you back for the future). So the only way to compensate you then is to put extra money into your personal pension so that it will pay as good a pension as your company scheme would have done over the missing years. But deciding how much that extra amount is can be very tricky and you should get legal advice and consider appealing if you are made an offer like this.
The figures so far are not encouraging. The average compensation paid to people who have been offered compensation and accepted it is just £8000. This is not, of course, a cash amount they are given. It is an amount paid into their pension fund in an attempt to boost their pension to the level it would have been if the individual had not been badly advised.
If you are in a job which has a company scheme and you have not joined or re-joined it, you should do so at once. It is always a good idea.
Going to court
There are concerns that the official compensation scheme is working too slowly and offering too little. Some people are suing through the courts. If you want to pursue this course of action then you should consult a solicitor. If you belong - or did when you were at work - to a trade union or professional body then you may be able to get advice from them.
There are time limits on taking court action. Normally you have to act within six years of the event you are complaining about (five years in Scotland). That would mean that a lot of people who were sold their pensions before the end of 1991 (1992 in Scotland) are already too late. However, the law allows cases to be brought later in some cases. If you could not have known at the time that the event was damaging to you then you have six years from the time when you could reasonably have known that. Some lawyers believe that date was in 1994 when the authorities finally accepted the problem and made new rules. That would allow cases to be brought into the year 2000 (1999 in Scotland). But some companies may try to avoid court action by claiming people should have known earlier than 1994. If you are considering legal action then you should write to the company and ask them to confirm that they will not argue that your case is what the law calls 'out of time'. If they refuse to do that, get legal advice.
Further help
The PIA Pensions Unit can be contacted on 0171 417 7001 between 9am and 5pm Monday to Friday. Outside those hours you can leave a message and they will get back to you. You can get a copy of the official leaflet on Putting Things Right - the Review of Personal Pensions by calling 0800 003 007.
Paul Lewis
October 1997
e-mail Paul Lewis on paul@deadline.demon.co.uk