Mis-sold A Pension? Here’s What You Need To Know

If you have been mis-sold a pension, advisers could have provided you with incorrect, unsuitable or misleading information regarding the pension you took out. Read on to learn how to spot pension mis-selling and how to make a claim if you are affected.

Rachel Lacey Published on 13 September 2021. Last updated on 15 September 2021.
Mis-sold A Pension? Here’s What You Need To Know

Mis-selling was a problem that tarred the pensions industry during the late 1980s and early 1990s. As many as two million people were encouraged by commission-hungry advisers to ditch valuable occupational pensions in favour of shiny, new personal schemes.

Insurance companies were hit with huge fines for failing to identify and pay compensation to affected savers.

Although the industry has done much to clean up its act since then, some experts fear pensions mis-selling is once again on the rise. This is at least partially the result of the pensions freedoms – introduced in 2015 – which gave savers aged 55 and over unrestricted access to their retirement savings.

What is pensions mis-selling?

A financial product is considered to be mis-sold if a regulated adviser recommended a product that isn’t suitable for you and your circumstances, or sold it without properly explaining how it works and the risks involved.

In the case of pensions, this could include recommending you transfer out of a defined benefit pension, which pays a guaranteed income for life, into a higher-risk personal pension such as a SIPP that does not provide any guarantees. You may need to manage that pot yourself or pay an adviser a costly fee to do so. If the risks have not been explained, you may have been mis-sold a pension.

Mis-selling could also extend to retirement savers who were wrongly encouraged to move their money into investments that were too high risk.

Is there another mis-selling scandal in the pipeline?

Although defined benefit pensions are valuable (because they pay a guaranteed income for life) they are not very flexible and transfers out of these schemes have soared since the introduction of the pension freedoms in 2015.

Members have been tempted by tantalising transfer values (a cash lump sum for leaving the scheme) and the ability to spend or manage their retirement savings as they wish.

The Financial Conduct Authority has expressed concern about the number of savers who have been encouraged to transfer out of these schemes since 2015. In 2018, after a market review it found that savers were recommended to transfer in 69% of cases and that less than half of those recommendations to transfer (48%) were appropriate.

In June this year, the Financial Times also reported that the FCA had written to more than 2,500 people who had been advised to transfer out of defined benefit schemes, encouraging them to claim compensation.

» MORE: What is a pension transfer?

How do I know if I have been mis-sold a pension?

Simply losing money on an investment doesn’t mean you have been mis-sold a pension.

However, if you feel that your money has been moved into an investment that is too high risk for you, or that you were not given enough information about the product you were sold, you may be a victim of mis-selling.

Alternatively, the adviser may not have mentioned any benefits you gave up when you moved your money, or they may have made grand claims about impressive returns if you acted on their advice.

You can only claim that a pension or investment has been mis-sold if you purchased it following the recommendation of an adviser. If you set it up yourself, you are responsible for the decision you made.

How to claim for a mis-sold pension

If you think you have been mis-sold a pension, you may be able to claim compensation.

You can do this yourself by taking your complaint to the Financial Ombudsman Service – although you do first have to complain to the party you are accusing – and it will be able to investigate on your behalf.

If the adviser you bought the pension from has gone bust, you may be able to put in a claim through the Financial Service Compensation Scheme (FSCS). It can pay compensation up to £85,000 if you have been given bad advice on a pension.

Both organisations allow you to make your complaint online and their services are free.

You may be worried that you will find it hard to prove that you were mis-sold a pension. If so, there are numerous companies that can put claims in on your behalf. These include claims management companies and law firms. However, you will have to give up a portion of your compensation to pay for their services – according to the FCA, this could be 40% or more.

In order to protect consumers, the watchdog has proposed a fee cap for claims management companies of between 15% and 30%, but this isn’t expected until later this year.

Should I use a claim firm or do it myself?

If you put in the claim yourself and are successful, you will be able to keep all of your compensation money and save thousands of pounds in fees.

Figures from the FSCS suggest that DIY applications have a good chance of success compared to some third parties.

Since 2018, the FSCS reports it has rejected 17.2% of applications from law firms and 17.8% from those who dealt with the FSCS themselves.

However, both were beaten by claims management companies where only 11% of cases were turned down.

If you go for the DIY route, make sure you are prepared. Gather all the relevant paperwork and any proof you may have to support your claim. Present your case clearly and concisely.

It is also worth having a good look at the FSCS and Financial Ombudsman websites ahead of your application – both can help you work out whether you are eligible to claim.

Image source: Getty Images

About the author:

Rachel Lacey is freelance journalist with 20 years experience. She specialises in personal finance and retirement planning and is passionate about simplifying money matters for all. Read more

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