Pensions Review

9th January 2007

In Outlook Issue 14 (November 2006), FSCS updated its forecasts for the number of Pensions Review claims we expect to deal with during 2006/07 and beyond, and outlined the potential impact for levy payers in the A16 (IFA Pensions Review claims) contribution group.

Following the publication of Outlook, the trade body AIFA asked FSCS to clarify its approach to Pensions Review claims. Our responses to the questions they asked are below.

Q1. If a consumer has sought redress under the Pensions Review and been told they do not have a claim against a firm (while still trading), will FSCS review the complaint if a firm is subsequently declared in default?

  • FSCS's Rules (COMP 8.2.7R) allow FSCS to reject an application for compensation if a review has already been carried out in accordance with the relevant regulatory standards applicable at the time. As such, where FSA, FOS or a firm have completed the review of a pension sale in accordance with the terms of the Pensions Review, FSCS would expect to reject any later claim for compensation. This would apply whether redress was paid or no redress was payable.
  • In some cases where claims have been rejected by FSCS on solvency grounds (i.e. the firm is not in default), the receipt of further investor claims, such as endowment mis-selling claims, may increase the firm's liabilities beyond its assets and means thereby subsequently causing the firm to be declared in default. Where previously a Pension Review claim had been rejected on solvency grounds but had not been considered on its merits, the claim can be reopened and may give rise to compensation. We would seek to establish whether or not the investor had taken any action against the firm in the interim.

Q2. Under what part of the Act, or FSA rule, is the FSCS empowered to review and make awards to complainants who have already had a case reviewed by the FOS (whatever the finding of the FOS)? 

  • The roles of FOS and FSCS are different and we work co-operatively but independently of each other. We are unlikely to take different views in practice on the eligibility of claims. Our obligation to pay only such compensation as is 'essential to be fair' is slightly different from FOS's 'fair and reasonable' jurisdiction. The maximum we can award is £48,000 for investment claims. In very general terms where we differ from FOS it would most likely be because our remit and rules, including the £48,000 limit, would result in lower quantification of claims.

  • Where a complaint has been settled following a reference to FOS, for the Pensions Review or otherwise, it would normally be final and binding (either because the consumer had accepted a formal decision, or because FOS had negotiated a full and final settlement). If, however, a FOS award, binding on the firm, has not been paid, and the firm is declared in default, FSCS may review the claim. Compensation, however, will only be paid if we are satisfied that the firm's actions have given rise to a civil liability due to the investor. Further, we would apply our own policies and procedures to the quantification of the claim. The award could be lower but we would not expect to pay compensation in excess of the amount due under the FOS award.

  • If FOS has rejected a complaint against a firm which then becomes insolvent and is declared in default, the investor is free to make a claim to FSCS. As you will appreciate, a rejection by FOS is not binding on the investor who would be able to issue court proceedings against the firm. If, on the review of such a claim, FSCS is satisfied that the firm does owe the investor a liability, FSCS may make an offer of compensation. FSCS would normally have regard to the material on FOS's file when considering the claim for compensation, and in practice, it is generally unlikely that FSCS would reach a different conclusion to FOS on the merits of a claim. 

Q3. Does FSCS recognise Limitations legislation and if so, how is it applied?

  • The starting point under FSCS's Rules is to apply the legal limitation test (i.e. under the Limitation Act 1980, as amended), but at the earlier of the investor's written indication of claim or the firm's date of default. Accordingly, where a firm has been declared in default, time has stopped running for the purposes of limitation under the COMP Rules. However, FSCS also has discretion to disregard limitation where it considers it reasonable to do so.

Jargon Buster

  • FOS

    Financial Ombudsman Service, for complaints or claims against firms that are still trading.
  • FSA

    Financial Services Authority, was previously the UK's regulator for the finance industry. It was replaced by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) on 1 April 2013.
  • In default

    A firm unable, or likely to be unable to pay claims against it. This will generally be because it has stopped trading and has insufficient assets to meet claims, or is in insolvency.
  • Investment

    a financial product in which money can be invested to earn interest or profit (although the value of investments can go down as well as up).
  • Pensions Review

    a review to assess financial loss for those people wrongly sold personal pensions between 29 April 1988 and 30 June 1994. Mis-selling occurred when people who would have been financially better off at retirement in their employer's pension scheme were advised to leave or not to join their employer's pension scheme, or where they transferred pension benefits from a previous employer's scheme and took out a personal pension plan instead.