A recent claim before the Financial Ombudsman Service may give hope to many retired savers taking income from investments via an "income drawdown" plan rather than an annuity, who incur annual commission costs for ongoing advice.
Many pensioners have traditionally used their pension pot to purchase an annuity. However, increasingly, pensioners are turning to a product known as "income drawdown" whereby they avoid buying an annuity when they retire by keeping hold of their pension pot and drawing an income directly from it. Changes to the pension legislation in April next year which will give savers unrestricted access to their money are predicted to result in many other pensioners following suit.
Whilst it is not essential to have adviser set up an income drawdown plan, many pensioners do instruct an adviser to set the plan up and monitor it every year to ensure that the money is not being used up too quickly. Such advice is generally paid for through annual commission payments built into the product, which are paid to the adviser.
A pensioner has now challenged the validity of these commission payments, on the basis that he had not received any advice from his adviser (HSBC Bank) but nevertheless had been charged annual commission, and the Financial Ombudsman Service (FOS) upheld his complaint, ruling that he had paid for continuing advice via the commissions but that HSBC was not in a position to review his plan, having pulled out of the pensions advice market shortly after the transfer, so it was no longer providing the ongoing service which the commissions were meant to fund. FOS ordered the bank to refund all the ongoing commissions that Mr J had paid since the policy was set up, plus interest and a £350 payment for "stress and inconvenience".
The ombudsman who ruled on the case said:
"Mr J was clearly under the impression that in setting up his pension income requirements with HSBC he would receive an ongoing service that would review his changing requirements on a regular basis. This level of service is particularly relevant to this type of income drawdown arrangement to ensure the most appropriate means of providing an income are considered.
"Having moved his not inconsiderable pension funds to HSBC to ensure an adequate income in retirement, he was effectively left to fend for himself. Attempts to gain a review at a time when it was most needed proved unsuccessful. I direct HSBC to refund the adviser remuneration charges (trail commission) taken since inception on the pension. "
Commission payments built into products so that the customer appeared to receive advice free of charge had been banned by the regulator two years ago, but were allowed to continue on plans that were already in operation. Regular deductions from investments, even if they are apparently small percentages of the sums involved, can make a huge difference to long-term investment returns.
In response HSBC has promised to review their portfolio to identify if there are any other customers in similar situations. But this begs the question: how many other products are generating commission for advisers, without any advice actually being provided?
Any firm that places a customer into income drawdown and then does not ensure that regular reviews take place is failing its customers. Anyone with a similar contract should review it and, if they are not receiving the advice they are paying for, should take steps to claim back the commission. The financial sector is bracing itself for more claims.
If you have an income drawdown product, and would like advice on how to claim back commission payments, please do not hesitate to contact the Dispute Resolution team at MBM Commercial.