Back on winning pension terms: Enthusiastic selling creates a problem

BETTY DAWSON, a senior careers officer from east London, left one of the best occupational pension schemes in Britain when she was persuaded by a sales agent two years ago to switch to a personal pension.

As a local authority employee, Mrs Dawson had been a member of the Local Government Superannuation Scheme for almost 10 years.

This scheme offers full inflation-proofing of pensions and generous additional benefits. Its members have automatic pension transfer rights when they move to another public sector employer.

By contrast, Mrs Dawson's personal pension, which was with Barclays Life, offered no guarantee of a pension linked to her final salary level. As a 'money purchase' policy, the ultimate pension depended on how much she could afford to pay in. There was no contribution from her employer.

Betty Dawson is one of many millions of people who since 1988 have been encouraged to take the personal pension route. She is also one of a small but growing number who have now challenged the advice they were given. After taking further independent advice, she rejoined the local government scheme, cancelled her premiums to Barclays, and asked Barclays to compensate her for the potential loss to her pension.

Insurance companies are all too aware that the number of such claims could escalate. The potential cost to insurers in cases of mis-selling runs into millions of pounds. Just as worrying is that many of the people who were wrongly persuaded to take out a personal pension may never realise that their retirement income has been affected.

While personal pensions are appropriate in some circumstances, over-enthusiastic selling led the regulatory bodies Fimbra and Lautro to issue detailed warnings to their members last year.

Concern about possible mis-selling of personal pensions focuses on two areas: 'opt- outs', where existing employees are encouraged to leave an occupational scheme, and transfers, where former employees use pension transfer value to finance a personal pension.

The regulators say that they are currently trying to work out the scale of the problem. During a three-month survey period last year, Lautro found that 50,000 people had cancelled personal pension policies less than two years after taking them out - a sign that all was not well.

Lautro plans to establish a working party in the new year to discuss compensation procedures in cases of mis-selling.

Full compensation would involve not just refunding premiums paid but ensuring that future pension benefits are at the level that they would otherwise have been. The Mineworkers' Pension Scheme, which has taken a lead in reinstating former members from personal pension policies, says that some insurance companies have had to pay up to pounds 10,000 more than they received in premiums to get their customers transferred back into the occupational scheme.

The MPS has reinstated about 20 people and is dealing with about another 250 inquiries from insurers. The reinstatement cases are from a wide range of personal pension providers, chiefly the North of England Building Society but also such familiar names as Scottish Life, Sun Alliance, Scottish Equitable, Colonial Mutual, Sun Life, Scottish Amicable, the Prudential, Norwich Union and Commercial Union.

Brian Russell, principal administrator of the Local Government Management Board, said there were 'dozens, maybe hundreds' of reinstatement cases being dealt with by the Local Government Superannuation Scheme's administrators. 'In principle, we welcome them back in - they never should have left,' he said.

Compensation arrangements are complicated, however, by the fact that many private-sector pension schemes do not permit former members to be reinstated.

In Mrs Dawson's case, Barclays has confirmed to the Independent on Sunday that it was prepared to pay the full costs of reinstating her in the local government scheme and would also be making an ex gratia payment, though a spokesman said that the bank did not accept that bad advice had necessarily been given. Barclays Life stopped taking new pension transfer business this year.

Unison, the local government trade union, has invited members in a similar position to Mrs Dawson to contact it for advice. Glyn Jenkins, Unison's pensions officer, argues strongly for the superannuation scheme. 'Arguably, only somebody who risks pension forfeiture by, say, committing treason or shooting their chief executive would benefit from transferring to a personal pension.'

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