PensionsAug 14 2015

Fos backs Sesame on second compensation offer

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Fos backs Sesame on second compensation offer

The Financial Ombudsman Service has backed Sesame’s second compensation offer of almost £21,000 to a widow, after the network admitted it mis-sold her husband a lifetime annuity as he was due to have a major operation.

The decision notice explained that Mr K died three months later, leaving his widow complaining that the firm should have waited until after the operation before giving advice on his savings of £64,178.

The annuity was purchased in 2013 from an existing pension plan the client held.

Sesame agreed the advice was unsuitable, offering Mrs K a lump sum of £11,516 based on a calculation of the total income likely to be received by the widow from the annuity in her lifetime.

Mrs K rejected the settlement, with the Fos agreeing that the offer “was neither fair nor reasonable”, instead suggesting Sesame pay the lump sum Mrs K would have received, less the annuity already paid out.

However, as the annuity cannot be cancelled and the provider is not allowed to give payments to third parties, Sesame instead offered £2,700 for inconvenience and an increased lump sum of £18,288, with Mrs K keeping her annuity.

The Fos found this offer fair, but Mrs K again rejected the offer, stating that she would only receive £269.49 a month for the guaranteed 10-year period of the annuity, equating to a total £13,000 below Mr K’s savings.

The widow also claimed that her family history reflected a life expectancy below 62, so aged 58, it was unlikely she would receive any further annuity beyond the product’s 10-year guarantee period.

Ombudsman Terry Connor upheld Sesame’s offer, meaning it must pay Mrs K £20,988. He stated that the decision has to be not only be fair and reasonable, but to also adhere to current legislation, pointing out that it is not possible to cancel the annuity.

“If I was to award the payment of the full lump sum Mrs K would have obtained more money than she is entitled to: the full lump sum and the future annuity payments.

“It is not possible for annuity payments to be redirected to Sesame because pension’s legislation dictates that the annuity provider must pay them to Mrs K.

“It is therefore important that a solution to the problem is reached, which is fair, reasonable, adheres to current legislation and is practical to implement.”

peter.walker@ft.com