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LONDON -- U.K. pension pro-viders again are finding themselves in the spotlight with new misselling allegations.
According to figures announced in Parliament last week by the Economic Secretary to the Treasury Patricia Hewitt, the misselling of private pensions will cost the pensions industry between L8 billion and L11 billion ($13.58 billion and $18.67 billion). The cost could go higher with additional reparation costs and fines for companies that advised people to buy private supplements to their occupational pensions.
Recently, the Financial Services Authority and the Personal Investment Authority have been reviewing the selling of free-standing additional voluntary contributions. These mechanisms allow an individual in a corporate pension plan to buy an additional pension contract if the amount being put into his or her corporate plan is less than the maximum contribution to the pension provision allowed by law.
The findings of the FSA and the PIA, released last week, indicate that some advisers may not have properly explained the difference between free-standing AVCs and regular AVCs to their clients. Regular AVCs often are subsidized by employers and may have lower costs, such as administration and advice fees, than do free-standing AVCs.
In particular, the investigation identified that employees with occupational pension plans providing for matching employer contributions to AVCs may have received bad advice. Also identified were employees who were members of occupational plans with high accrual rates, where the free-standing AVCs may have led to overfunding and, as a consequence, will have tax penalties.
The Assn. of British Insurers has announced that it will launch a review of the relevant product providers to determine the extent of the problem, though the association said initial indications are that the number of cases and the extent of redress "is likely to be quite small."
The FSA will act as observers to the review, said a spokesman for the ABI. "The plan is to come up with more detailed proposals by December."
As part of the review, the ABI aims to determine whether there are any other categories of free-standing AVCs that may "run the risk" of being missold, said the spokesman.
Initial indications are that the cost of redress will be less than L100 million ($169.7 million), he added. "In the scale of things, it is not that big," he said. Approximately 960,000 free-standing AVCs are in force.
In a statement, ABI Director General Mark Boleat said, "Contrary to some recent ill-informed comment, the regulators have said. . .that they have no evidence of general misselling of (free-standing) AVCs. However, they have found some not-very-common categories where a customer may not have been given the best advice. Where mistakes have been made, product providers are anxious to examine these cases and, where appropriate, pay redress."
The review is expected to be completed in December.
At the same time, the U.K. Treasury has disciplined a further 31 companies over pension review failings, and fined and reprimanded employee benefits consultant Sedgwick Noble Lowndes Ltd.
The 31 firms disciplined all are small independent financial advisers; together they were fined a total of L108,000 ($183,276).
Sedgwick Noble Lowndes received a L100,000 ($169,700) fine plus L12,000 ($20,364) costs from the PIA for failing to comply with pension review requirements.