The Financial Services Authority (FSA) will finally expose a mis-selling scandal which regulators have continually refused to acknowledge, and will put in place arrangements for investors who fear they have been mis- sold.
It centres on more than a million pension top-up contracts, known as free-standing additional voluntary contributions (FSAVCs), which since 1987 have been sold to employees by insurance company salespeople.
The overwhelming majority of the top-up policies have high charges which can eat up a year's contributions when an employee pays into a policy for 10 years. The charges are high because of commission paid to salespeople.
Leading actuaries have warned since 1995 of widespread mis-selling of the policies because they fear salespeople failed to advise customers of much cheaper top-ups available from their employers' own pension schemes.
The Personal Investment Authority (PIA), which regulates insurers for the FSA, has repeatedly dismissed calls for it to address the problem. Preoccupied with the larger, pounds 15bn problem of personal pension mis-selling, it claimed last year to have "no evidence" the top-ups had been mis-sold.
Last month Bacon & Woodrow, the actuarial consultancy, called for a full- scale review. At the same time it published a report showing most policyholders had got 15 per cent less money from a free-standing top-up than from an in-house scheme.
Under pressure to investigate, the PIA in the summer launched a series of "focus monitoring" visits at insurance companies to determine whether the best advice had been given when the policies were sold. The results of that monitoring will be published as the review is launched, by tomorrow at the latest.
Companies such as Prudential, Allied Dunbar, Pearl, London & Manchester, United Assurance and others may have to pay hundreds of millions of pounds in compensation. Fines can also be imposed.
Andy Parker, an expert on pension top-ups at Watson Wyatt, the actuary, said: "The bulk of the evidence is that there has been mis-selling, though we don't know the extent. But we do know there are people with problems as far as FSAVCs go."
Policyholders will have been mis-sold if the adviser who sold the FSAVC failed to compare its charges to the top-up policies offered by their employer.Reuse content