Review may block compensation

Thousands of victims of the pensions mis-selling scandal may not get compensation. A new review says those giving advice are not liable if they believed it to be accurate at the time.

Up to 600,000 people are to have their cases reviewed according to new rules set by a financial watchdog - but they are not being told how much compensation they will receive.

Victims are to have their cases assessed by insurers and independent financial advisers belonging to the Personal Investment Authority.

However, many will not receive redress even if they were badly advised - as long as advice was given on the basis of generous assumptions then in force about investment returns. Nor does the document mention how compensation will be paid to transfer victims. The PIA will formally publish its pension transfer document early next month.

The latest draft, seen by the Independent, says insurance companies and independent financial advisers will have to assess cases on the basis of what is described as a financial viability test.

The PIA's document follows months of talks within the industry on the best way to assess those who were badly advised over their personal pensions. More than 1.5 million may have been affected, according to the Securities and Investments Board, the City watchdog.

Other categories, including those who never joined company schemes or were persuaded to leave them, are already being dealt with. Transfers, left until last, form the largest single number of victims of a scandal that may cost the financial services industry up to pounds 3bn.

The paper tells PIA members the financial viability test will be based on "an assessment of whether the investor was financially disadvantaged at the time. This will require comparison between projected benefits of the personal pension and expected benefits of the occupational scheme".

The test set by the PIA will turn on whether advice given at the time of the transfer was "a reasonable financial proposition in the light of investment conditions at the time".

To show this was so, companies will be allowed to base calculations on an amalgam of the old fund projections they were allowed to use by Lautro, the former financial regulator.

This will mean they can legitimise advice given, as long as their funds did not have to grow by more than 12.5 per cent a year to match any benefits flowing from an occupational scheme.

Alternatively, advisers who used a transfer analysis system, which compares benefits from company pension schemes to the value of a fund after it was shifted into a personal pension, will also be able to justify their advice. However, advisers will have to do so by showing that they also looked at whether a company scheme had a record of giving discretionary increases in their pensions.