Pensions could be the next big area for mis-selling claims

  • the increased availability of third-party litigation funding, which marries perfectly with large scale group pension litigation; and
  • the increasingly sophisticated approach of lawyers pursuing these claims.

The basic litigation funding model involves a third-party funder paying the ongoing costs associated with bringing proceedings, including an ATE (after the event) insurance premium to insure against the adverse costs risk.

If the claim is unsuccessful, the funder loses its investment (that is, all costs it has incurred on the claim).

However, if the claim is successful (that is, there is a settlement or judgment in the claimant's favour), the funder is repaid its costs, plus a premium, from the claim recoveries before they are distributed to claimants. 

While this model serves to reduce claimant recoveries (due to the deduction of the litigation funder’s premium), it provides claimants with the means to pursue defendants where they would otherwise be unable to do so. 

Litigation funding and pension claims: the perfect match

As alluded to above, the uniformity of the pension investment journey, once properly understood, means that group pensions claims have the classic hallmarks required to make litigation funding viable. 

The pension investment journey outlined above involves thousands of individuals (the batch investors) purchasing the same pension investment, on the same terms, and from the same entity.

If there is a fault in this standardised process, the individuals go on to suffer the same loss and have the same claim against the same defendant. Pension trustees and financial institutions make attractive defendants (in any claim, but particularly in funded claims where the funder needs comfort as to its return) due to their deep pockets and insurance policies.

Claimant groups in pension claims have huge growth potential (particularly with the help of social media platforms), which means they can have the capacity to absorb the cost of the litigation funder’s premium without significantly impacting individual claimant recoveries.

Additionally, historic pension claims (that is, claims that arose more than six years ago, which would usually be time barred) may be included in current group actions if the claims involve allegations of fraud, concealment or latent damage.

What this means for the pension market participants

While this is obviously good news for claimants, it presents both a threat and an opportunity to the traditional market players. 

For example, a pension trustee may find itself on the receiving end of a funded group claim (for example, a claim that they breached their duties, acted negligently, or in serious cases, were complicit in fraud).

Alternatively, a trustee may find itself as a claimant in a funded group action. For example, it may consider itself duty bound to participate (directly or by delegation) as a claimant in a funded claim against a third-party investment provider to recover pension losses for beneficiaries.

Indeed, a trustee may even find itself in both roles simultaneously, such that it is being pursued as a defendant (or anticipates being so pursued), while at the same time participating as a claimant in a corresponding group claim against a third party to mitigate any potential liability in the proceedings it is defending (or anticipates defending).