Pension victims in line for early compensation
Tuesday 18 April 1995
They are among the 1.5m people who may have been wrongly advised to take out a personal pension rather than remaining with, or joining, occupational pension schemes.
New rules on compensation will be published today by the Personal Investment Authority - the financial services watchdog body.
The rules, which have been seen by the Independent, say that a substantial majority of urgent cases, some 350,000 in all, must be dealt with by the end of this year.
Priority will be given to cases where the holders of personal pensions have retired or are dead. Next in line will be policyholders who are close to retirement. The remainder of priority cases are to be settled by the end of 1996.
The PIA, under its chief executive Colette Bowe, has acted following a report last November by the Securities and Investments Board, the City regulator. This showed that up to 1.5m people may have been wrongly advised, and the compensation bill may reach £3bn.
About 1m people are being treated as priorities - including those, known as opt-outs, who were urged to leave their company pension schemes, set up private ones and transfer any savings into them.
Also covered in the review are employees who had the option of joining a company scheme but were sold a private pension instead. They are known as `non-joiners'.
The PIA is proposing to leave until last a further 600,000 cases - policyholders who switched jobs, started a private pension and shifted money from their old fund into it. The authority has yet to publish guidelines on how their cases will be assessed and compensated.
For opt-outs and non-joiners, it recommends that all reasonable steps be taken to contact any policyholders affected. This includes asking the Department of Social Security to forward letters to former clients.
Advisers should also consider offering compensation for distress to clients who they feel deserve it.
"It is in the interests of firms to give consideration to this aspect to avoid investors unnecessarily taking a claim to the [PIA] Ombudsman," the PIA says.
Unless totally necessary, the adviser or company representative carrying out a face-to-face review of the pension should not be the one who sold it. Nor should the meeting be used to sell further financial products, unless requested by the client.
But the PIA may still face legal action by the IFA association, the financial advisers' trade body, which claims many of its members will be forced out of business if they implement the new rules.
The association has successfully delayed the introduction of similar rules from the SIB by applying for a judicial review.
Garry Heath, chief executive of the association, said: "We had a meeting with the PIA last week at which we believed its officers were prepared to come round to our point of view on some issues. It now appears this is not the case. We will have to decide whether we seek a judicial review of the PIA guidelines."
It is believed that some of the association's directors are dismayed by the hostile public reaction to the legal action against the SIB rules and have threatened resignation if it is extended to the PIA.
The investment authority's new rules on compensation were originally due to be published before Easter, and the delay was partly caused by claims that they were too difficult to understand.
PIA staff have spent much of the Bank Holiday writing an easy-to-read guide for their members.
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