Group claims relating to the mis-selling of financial products have been the thorn in the side of most banks for more than a decade, particularly since the financial crash of 2008.
However, notwithstanding that the pension industry also engages in the mass sale of financial products, its players have, until recently, avoided being pursued for mis-selling on quite the same scale.
The pensions industry has generally been regarded as a more elusive target for financial mis-selling claims, predominantly because of the more nuanced way in which the pension investment journey is structured.
While banks historically tended to keep each part of the investment journey in-house (that is, a bank employee would advise customers to buy a financial product sold by said bank, thus unintentionally making the bank an easy target when problems arose), by contrast the pension investment journey is more complex, making it harder to pin liability on attractive defendants.
The pension investment journey
For example, a standard pension investment journey might involve:
- an independent financial adviser;
- a pension trustee;
- a financial institution offering an investment product (such as a wrapper bond); and
- an investment fund selling investments to be held within the wrapper bond.
Often these four market participants would be based in different jurisdictions with different local regulatory regimes (varying in robustness).
These market participants are to a degree co-dependent on each other for referrals, and it is common for thousands of investors to follow a substantially identical investment journey through the same four entities (such individuals being known as 'batch investors').
There is also an argument that the co-dependent nature of the industry disincentivises its participants from holding each other to account when mistakes are made, unless specifically compelled to do so by extraneous pressure.
The effect of all this is that it is not easy for everyday pension investors to seek redress for pension losses through civil proceedings. To do so, they would be faced with the unenviable task of: untangling the complex investment journey; identifying the duties and responsibilities of each player in accordance with the relevant applicable law and local regulations; and establishing wrongdoing on the part of potential defendants with the means to satisfy judgment.
Undertaking the analytical exercise behind these steps alone is a complex and laborious endeavour requiring specialist legal expertise, not to mention the financial and emotional commitment of civil proceedings (possibly across jurisdictions), and the associated adverse costs risk (that is, the risk that the claimant would have to pay most of the defendant’s cost in the event the claim fails).
Little wonder then that many pension investors with significant losses (sometimes comprising the entirety of their pension pot) have written off the prospect of even attempting to seek redress through civil proceedings.
Why is pension litigation tipped as a boom area?
What is increasingly clear, however, is that the traditional context is changing, and that group claims for mis-sold pension investments are predicted to be a litigation boom area.
The key drivers behind this change are undoubtedly: