Contracting out of SERPS/S2P: FSA finds no widespread mis-selling
9th May 2007The Financial Services Authority (FSA) has concluded its investigation into the sales of policies used to contract out of the State Second Pension (S2P), previously known as the State Earnings Related Pension Scheme (SERPS), and found no evidence of widespread mis-selling.
The FSA launched its investigation in early 2005 after concerns were raised about sales standards in relation to Appropriate Personal Pensions (APPs) sold since 1988 - the policies used to contract out.
The investigation involved careful analysis of firms' sales practices and quality controls in the context of the regulatory standards that existed at the time of those sales. As a result of that work, the FSA has concluded that there is no evidence of widespread mis-selling.
The FSA's investigation identified around 1.5% of sales (around 120,000 policies) out of the eight million APPs sold where the consumers were above the industry-set 'pivotal ages'. As many such sales were not typical practice at the time, it is possible that these consumers may have been wrongly advised to contract out.
However, there are reasons why it may have been appropriate for them to do so even if they were above the pivotal age. For example, some consumers may have wanted the option to leave their pension savings to their dependants if they died before retirement, or they may have preferred control over their investments rather than relying on government pension policy.
To assist those who may have been above the pivotal age at the time they contracted out, the FSA will be publishing a step-by-step guide later this month explaining where grounds for complaint may exist and, if so, what steps consumers should take next. The FSA is also updating its existing information which helps consumers decide whether or not to contract out of S2P, going forward, and explains what consumers should do if they believe that they were wrongly advised.
In addition, the FSA will continue to monitor the number of complaints received by the Financial Ombudsman Service (FOS) in case these indicate issues in past sales at particular firms. The FSA will also continue to follow up this issue on a firm-by-firm basis as part of its continuing supervision.
Vernon Everitt, Director of Retail Themes at the FSA, said:
"We have conducted an extremely thorough investigation and analysis of this issue and found no evidence of widespread mis-selling of policies used to contract out of SERPS/S2P.
"For the 1.5% of sales to consumers who were above the pivotal age, our step-by-step guide will help them to understand if they are affected and, if so, what to do next. We will also continue to follow up issues with individual firms as part of our continuing supervision of them."
The consumer guide will be available towards the end of May on www.moneymadeclear.fsa.gov.uk or from the Consumer Helpline on 0845 606 1234.
