DIY claims for mis-sold pensions could save you thousands in fees

Victims of mis-sold pensions are being advised they might be better off making a claim themselves rather than going through a third party.

New figures reveal that DIY claims stand a good chance of success – saving thousands of pounds in commission that might have otherwise gone to claim management companies or law firms acting on their behalf.

Since the start of 2018, the Financial Services Compensation Scheme, which pays up to £85,000 per claim, rejected 17.2 per cent of applications from law firms compared to 17.8 per cent from people making their own applications directly through the FSCS.

Law firms and claim management companies may charge more than 40 per cent per claim.

‘Charging desperate victims massive fees, for recouping a fraction of their loss is just heaping further misery on them,’ said Stephen Timms MP, chair of the work and pensions committee and former shadow Work and Pensions Secretary.

The figures reveal that claim management companies had the lowest rate of rejections, with an average of 11.1 per cent of cases being denied.

Such firms are likely to face significant fee cap charges from the autumn, after a Financial Conduct Authority investigation earlier this year found some were over-charging customers.

The proposed cap will mean claim management companies won’t be able to charge more than 15-30 per cent, depending on how much redress a consumer is due, which could save some several thousand pounds in fees. 

‘When working well, claim management companies can provide useful services for consumers,’ said Sheldon Mills, executive director of consumers and competition at the FCA.

‘However, consumers can experience harm when they do not understand the nature of the service claim management companies provide and where they are charged excessive fees. 

‘The proposals we have announced are designed to address this and we estimate that the proposed cap on fees could save consumers around £9.6m a year.’

The FCA does not regulate law firms, however, some of which could be charging up to 50 per cent per claim on a no win, no fee deal, according to the legal watchdog, the Solicitor’s Regulation Authority.

The high fees mean pension savers are typically charged tens of thousands of pounds from the money they are awarded, even though such claims rarely go to court and involve no costly litigation.

‘We don’t specify a limit on what can be charged, because the law firm might be able to justify why their work costs so much,’ said a spokesperson for the Solicitors Regulation Authority.

‘But they would be in breach of our rules if clients did not know what they might be charged before they agree to any work being carried out.’

Last year, 13,504 applications – a record high number – were made to the FSCS for mis-sold pensions.

These include high-risk investments made through self-invested personal pensions and pension transfers, where consumers are told by their financial adviser to cash in their lifetime pension scheme when it is not in their best interest to do so.

‘We always say to consumers, who believe they have been mis-sold to, that they should consider an application themselves,’ said Sarah Stokes, director of Pension Claim Consulting.

‘It can be fairly straightforward and it’s free, although many people want a third party to work on their behalf, especially in complex cases.

‘People become desperate having had their pension pots wasted by crooks who run dodgy schemes, but that is no reason why they should be made to pay through the nose to get justice.’

Her firm charges 18 per cent for successful claims. Under its terms and conditions, if you receive a compensation offer PCC recommends you accept but you reject it, you also have to pay 18 per cent. 

‘How is a pension mis-sold?

Mis-sold pensions can include any pension scheme that you were persuaded to invest in which may be deemed risky or unregulated.

It will often be sold on the promise of better returns.

Self-invested personal pension (SIPP) portfolios can in some cases be impossible to sell – particularly when involved in high-risk investments or when subject to higher annual fees.

‘I believe that hundreds of thousands of people have been mis-sold, not just by advisers who were authorised by the FCA but also by spiv or telesales companies making ridiculous promises to investors, who were not authorised,’ said Paul Higgins, a solicitor at Pension Justice.

‘Over the past few years I have seen many clients transfer away from both private pensions and defined benefit pensions to Sipps and thereafter “invest” in completely worthless projects such as carbon credits, fractional ownership in Cape Verde, ethical forestry, storage pods, car park schemes, to name a few.

‘The adviser who recommended the pension transfer to a Sipp would not only be paid by the client from the monies transferred to the receiving scheme but would also receive a ridiculously high commission from the underlying investment company.’ 

His firm, which is regulated by the SRA, charges 30 per cent for successful claims.

Meanwhile, you can also be entitled to compensation in relation to final salary pensions.

By transferring a final salary pension, you may lose any guaranteed benefits as well as risking the money in your pension pot – and, if wrongly advised, you may be entitled to compensation.  

What are the signs you might have been mis-sold a pension?

Fewer than half of people ditching final salary pensions were given the right advice, according to an FCA probe in 2017.

 Regulators uncovered a series of failings by financial advisers and pension transfer specialists – which at worst left savers at risk of moving pensions to scam schemes.

A subsequent review by the FCA in December 2018 found problems persisted at some firms. 

You may have been mis-sold a pension if you were not made aware of the pension charges and fees to start with. 

‘Some pension holders have been encouraged to purchase a specific type of pension only for their adviser to fail to notify them of associated fees and charges,’ said Higgins.

‘Sometimes this can leave people paying more money in costs than their pension earns.’

The risk involved in any pension or investment should always be clearly explained and you must consent to the level of risk being taken.

An underperforming investment is not in itself a sufficient reason to claim, but you can claim for losses on an investment where you were not made aware of the risk.

‘If your financial adviser recommended a product to you and failed to warn you of the risks involved, this could be considered mis-selling,’ said Higgins.

‘You might also have been mis-sold your pension if your adviser promised a specific outcome that was not achieved.’

A financial adviser should also always explain the important terms and conditions prior to sending any documentation.

If a financial adviser failed to explain the terms and conditions, this could justify making a claim.

Finally, if you were encouraged to transfer your money from a workplace pension into a different scheme, you may also be entitled to make a claim.

‘This could be considered bad advice and it may be the case that the worker would have been better off keeping their money in their employer’s pension scheme,’ said Higgins.

‘Workers most commonly affected by this type of pension mis-selling include civil servants, railway workers, teachers, police officers, firefighters, NHS workers and those in the armed forces – often advised to transfer their pension into what is known as a ‘money purchase scheme’.

How do you claim alone? 

There are a number of regulatory bodies to which you can turn if you suspect you have been mis-sold your pension.

If the company in which you invested your pension is no longer trading, the FSCS will be the organisation to turn to for compensation.

However, if the company is still trading or the adviser still authorised then it would be best to claim directly to the Financial Ombudsman Service.

If the FSCS or FOS think the case is for the Pensions Ombudsman or another agency, they will refer and inform you accordingly.  

Claiming through the FSCS   

This can be done by creating an account on the FSCS website – although it is possible to request a paper application form if preferable. 

As soon as the FSCS receive an application, it is assigned to a claims handler who will advise on the next steps. 

They may require further information about the pension scheme, including how much the pension has accumulated.

Once the FSCS has enough information, it will consider whether the pension transfer or other advice given was suitable.

If it finds the advice was unsuitable, it will work out how much money was lost and how much it can pay.

If it can pay compensation, money will be sent by transfer or cheque along with a letter explaining its decision and how any compensation was calculated.

Claiming through the FOS

The first step is to contact your pension provider or advisor in writing, so you have a record of how they respond.

Typically, firms that are regulated by the FCA must respond to any complaint in writing within 8 weeks.

If the firm fails to respond within the relevant time period or you are unhappy with the response received, you can then make a complaint to the Financial Ombudsman Service.

The Financial Ombudsman Service is a free, independent service for settling disputes between financial services firms and their customers

It will ask your pension adviser or provider to explain what it thinks happened and then decide whether to support your complaint.

It is important you contact the Financial Ombudsman Service within six months of receiving a final response from the firm or it may not be able to deal with your complaint.

If you do not want to accept a decision by the Financial Ombudsman Service and you have not used an independent complaints scheme, as a last resort you may be able to take your case to court

You can also get free help and advice from organisations like Citizens Advice and the Pensions Advisory Service.