Fos data prove retrospective claim fears overblown

New figures published today show annuity claims have rocketed in the past year since the chancellor pledged to end the effective compulsion to annuitise. But behind the scenes the Fos is rejecting eight in every 10 complaints, up significantly on the previous 12 months.

Chancellor’s George Osborne’s now infamous statement in last year’s Budget that “no one will have to buy an annuity” saw providers’ values plummet within minutes and advisers fearing that recently sold annuities would be regarded as ‘mis-sold’.

Advisers were afraid that complaints regarding annuities would rocket. In the event, both annuity and drawdown complaints have increased by 29 per cent and 7 per cent retrospectively.

However a Fos spokesperson told me that it only upheld 20 per cent of annuity complaints and 42 per cent of income drawdown complaints, down from 32 per cent and 49 per cent the previous year. The uphold rate on annuities has in reality gone from already low to tiny.

The uphold rates should comfort advisers and generally suggest fears over retrospective claims - most recently expressed in warnings over so-called ‘insistent’ clients - are overblown.

Many advisers have told FTAdviser that they simply plan to steer clear of clients that want to go against their advice, for example for a defined benefit transfer, however others want to help out of fear that their clients will otherwise execute decisions poorly or use unscrupulous non-advisers.

The Personal Finance Society has even written to the government and the Financial Conduct Authority warning they run the risk of creating a future mis-selling scandal if they do not address the issue of ‘insistent clients’ acting against professional advice.

At a recent conference, Rory Percival, technical specialist at the FCA, addressed this by outlining three steps to help advisers deal with insistent clients. This basically involved documenting your advice, including that the decision went against advice.

FTAdviser commentators said that Mr Percival’s view is too simplistic and advisers will still be hauled over the coals, with the majority citing Fos. This gets to the nub of the matter: Fos can famously ignore regulatory compliance and is perceived to act retroactively.

However, the ombudsman has always claimed and recently told FTAdviser it was rare to find against firms over non-advised processes, or to find in favour of the client where recommendations were made in good faith based on the information available at the time.

The data published this morning would seem to confirm that stance. More annuities complaints were received following the rule change, but there has been a corresponding fall in the uphold rate showing most of these have been rejected.

The spokesperson said: “We can’t give advisers a definitive assurance that they won’t face a case with the ombudsman, but if they do what they do best, it won’t come to that.

“The FCA’s existing rules on fact finds and suitability documents already provide scope for a financial adviser to record what they’ve recommended (or not) and why. So should a complaint arise, the ombudsman can form a balanced view of the nature of that advice.”

An interesting issue here is the claims over past mis-selling of annuities over and above the changes to the access rules.

Last year, FTAdviser reported on a major FCA report, which found up to 134,000 customers a year who bought their annuity from their existing provider could have secured higher income on the open market.

The review of providers accounting for 330,000 of the 420,000 annuities sold in 2012 found on average shopping around could gain a customer £70 more per year, equivalent to about £1,500 more in savings. Five per cent could have received up to £200 a year more.

Following this, in November, the Daily Telegraph ran a story that claimed there was potential for “thousands” of pensioners to receive payouts, after Aviva become the first provider to issue backdated payments to customers who were not asked key health questions.

Fos rulings show that the majority sales are indeed compliant with regulatory requirements. It will be fascinating to see whether the regulator eventually changes its tune and orders a wider past mis-selling review - and how that would affect Fos decisions.

donia.o’loughlin@ft.com