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SERPS mis-selling

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Patrick Kelliher

In recent weeks, ads for a SERPS misselling claims company have popped up frequently on my Facebook page [1]. Not content with mortgage endowment and PPI misselling, ambulance chasers are also looking at contacting-out sales as a source of claims and fee income. Just how serious a threat is this ?

At the heart of the misselling claims are appropriate personal pensions (APPs) used to contract out of SERPS [2]. The government paid National Insurance rebates into the APP but in return, a deduction would be made from SERPS benefits in respect of the period contracted out. When contracting out through APPs was introduced in 1988, the rebate did not vary by age, whereas the value of SERPS benefits foregone increases with age, so contracting out was generally expected to be beneficial for younger people below a “pivotal age”. Although rebates were then changed to be age related, the expectation, based on assumptions for investment returns and life expectancy, remained that...

UK political risk - it hasn't gone away you know....

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Patrick Kelliher

This is my second revision to this blog. I first posted this blog after the Scottish referendum; and then updated it just before the general election. Back then I was concerned about the possibility of a minority Conservative government backed by UKIP calling a referedum on EU membership. I was wrong about the Conservatives being in a minority, but we are now looking at an in/out referendum on EU membership in 2017 and with it the possibility of the UK leaving the EU, the so called Brexit.

This vote would be a much closer contest than Scottish independence (which in the end was unexpectedly tight). Currently most opinion polls have a majority in favour of staying but some polls have a majority in favour of leaving and the polls have up to 20% of voters uncommitted [1]. Support for staying in may improve if David Cameron secures concessions as part of a renegotiation of the UK’s membership, while most businesses will actively lobby...

How exposed are life insurers to enhanced transfer value misselling ?

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Patrick Kelliher

My previous post touched on how asset managers could be exposed to 3rd party misselling under the FSA’s PS07/11 on provider / distributor responsibilities [1] which places an onus on product providers to ensure their products are suitable for target markets and that marketing literature and other sales support is sufficient for customers and their advisers to understand risks involved. I think PS07/11 could now become a critical issue for life insurers as it may expose them to misselling liabilities in respect of enhanced transfers values (ETVs).

By way of background, ETV exercises were often undertaken by employers to reduce pension scheme liabilities or reduce their exposure to pension scheme risks. They typically involved deferred members who had left employment and were no longer accruing benefits but had still to reach retirement age. These were given incentives to transfer their benefits to a personal pension, thereby extinguishing the scheme’s liability. The...

Asset manager failure - are you prepared ?

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Patrick Kelliher

Invesco’s recent £18m FCA fine [1] has highlighted the conduct risks facing asset managers, but conduct risks are just a subset of a wide range of operational risks run by asset managers. Could these make an asset manager insolvent ? and if so, what would be the impact on their clients such as insurers and pension funds ?

The £18m is one of the largest ever levied by the FCA, but it is not that significant in the context of the Invesco group, which had equity of just under $9bn (/ £5.45bn) at 31/12/2013 [2] i.e. the fine only amounted to 0.4% of group equity. It is unlikely the FCA would levy a fine that would push an asset manager into insolvency, but what is interesting about the fine is the failings that lead to. Invesco failed to communicate changes in risk profile of funds it managed to investors. This failure exposed it to compensation claims, but in this instance Invesco got off lightly with investor compensation of only £5m.

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