Mis-selling of personal pension plans: A legal perspective

Abstract

major life companies and many independent financial advisers. The cost of the industry's Pensions Review and the level of compensation paid will undoubtedly mean that with-profits policy holders and shareholders of those life companies will also suffer losses. Many independent financial advisers have gone, and will go, out of business. The cost of indemnity insurance for advisers will increase as a result of the substantial increase in claims. On top of all this, the Treasury directed the regulators to discipline heavily and fine those companies and firms that fell behind in the Review process. The adverse 18

Financial Fraud: A Literature Review

“…Another segment of the financial services industry that has been repeatedly plagued by episodes of large-scale mis-selling is the life-insurance and private pensions industry. Widespread mis-selling of life insurance and pension plans resulted in major scandals and regulatory actions in the United States in the 1980s (Fischel and Stillman, 1997;Egler and Malak, 1999), in the United Kingdom in the 1990s 21 (Black and Nobles, 1998;Ryley and Virgo, 1999;Schulz, 2000;Ward, 2000) and in the Netherlands 22 and India in the 2000s (Anagol et al, 2013;Halan et al, 2014).…”

“…Previous research on the abovementioned mis‐selling scandals suggests that they all occurred against the backdrop of a gradual withdrawal of government support for state pension provision and a secular move away from traditional, collective ‘defined benefit’ pensions towards personal ‘defined contribution’ accounts, which essentially are investment products based on the investment performance of an underlying portfolio (Black and Nobles, ; Ryley and Virgo, ; Ericson and Doyle, ; Mitchell and Smetters, ). Governments in those countries allowed, through legislation, and encouraged, through tax incentives and advertising, individuals to substitute personal pension plans provided by life insurance companies for collective occupational pension schemes.…”

Financial Fraud: A Literature Review

“…One segment of the financial services industry that over the last few decades has been repeatedly plagued by episodes of large-scale mis-selling is the life-insurance and private pensions industry. Widespread mis-selling of life insurance and pension plans resulted in major scandals and regulatory actions in the United States in the 1980s (Fischel/ Stillman 1997;Egler/Malak 1999), in the United Kingdom in the 1990s 67 (Black/Nobles 1998;Ryley/Virgo 1999;Schulz 2000;Ward 2000), and in the Netherlands 68 and India in the 2000s (Anagol/Cole/Sarkar 2013; Halan/Sane/Thomas 2014).…”

Mis-selling

“…The product, launched as a portable and flexible solution, relied upon the investment performance of its underlying funds. While considerable publicity was given to the advantages of this product, little attention was paid to the real comparison between personal pensions and existing final salaries in occupational pension plans (Ryley and Virgo 1999). schemes in favour of personal pension plans.…”

“…As a result, the investors lost favorably defined benefits available in occupational pension schemes and ended up investing in an investment performance-related product which provided little security and no guaranteed benefits. (Ryley and Virgo 1999) The second big mis-selling incident in the UK resulted from combining the sale of regular financial instruments, such as loans, credit cards, or mortgages with payment protection insurance (PPI). PPI was designed to cover repayments when people couldn't meet their obligations due to accident, illness, disability, or death.…”