They are the latest in a series of mis-selling scandals to engulf the personal pension industry, forcing up the total cost of redress to an estimated pounds 11bn.
However, the FSA backed away from forcing pensions companies to carry out a review of all the 1 million-plus top-up schemes, known as Free-Standing Additional Voluntary Contribution Schemes, or FSAVCs, sold between 1988 and today.
The watchdog said that despite evidence showing that FSAVCs deliver poorer returns than in-house AVCs, "there is no evidence of generalised, widespread mis-selling of FSAVCs".
Mike Folger, director of investment business at the FSA, said: "These proposals, together with the other consumer-focused steps we have already taken, are designed as an effective and proportionate approach to the problems identified through our monitoring in 1998."
Sheila McKechnie, director at the Consumers' Association, said: "I am concerned that the terms of reference preclude an investigation of the comparisons between employers' AVC schemes and FSAVCs, where the poor deal was, in our view, a result of the high commissions paid to advisers."
The proposals, announced in a consultation document yesterday, were welcomed by the Association of British Insurers. A spokeswoman said: "The proposals are not a big surprise. We all want to make sure people who need to be are compensated. [This] follows on from our own work in the same area although the figures [for compensation] were substantially less. But those were early estimates."
The FSA document contains research by actuaries Watson Wyatt, showing that someone who paid contributions into an in-house AVC scheme for five years would have achieved returns up to 7.6 per cent higher than with an FSAVC.
The regulator said yesterday that although it was not insisting on everyone's FSAVC being reviewed, that did not prevent individuals from demanding that a case be looked at.
The FSA's inquiry follows the admission last year by its frontline pensions watchdog, the Personal Investment Authority (PIA), that there was "anecdotal evidence" of mis-selling in this area. Earlier, the PIA had denied that mis-selling of FSAVCs was a significant problem.
The report identifies four main areas where poor advice may have been given. These include cases where buyers of AVC schemes had the chance to join their in-house company ones and where the employer would have matched contributions had they done so. Other similarly-subsidised schemes are also identified for review.
One category where about 15,000 people may have been mis-sold an FSAVC is members of the Armed Forces. Their pension scheme is structured in such a way that special care is needed when considering a top-up. A final group concerns individuals sold a personal pension on the grounds that they could not join their company scheme at the time.Reuse content