When is a guarantee not a guarantee? When the FSA says so. - Ros Altmann

    Ros is a leading authority on later life issues, including pensions,
    social care and retirement policy. Numerous major awards have recognised
    her work to demystify finance and make pensions work better for people.
    She was the UK Pensions Minister from 2015 – 16 and is a member
    of the House of Lords where she sits as Baroness Altmann of Tottenham.

  • Ros Altmann

    Ros Altmann

    When is a guarantee not a guarantee? When the FSA says so.

    When is a guarantee not a guarantee? When the FSA says so.

    When is a guarantee not a guarantee? When the FSA says so.

    by Dr. Ros Altmann

    (All material on this page is subject to copyright and must not be reproduced without the author’s permission.)



    The FSA issued consumer booklets designed to help people understand the choices they needed to make, when considering whether to stay in their employer’s final salary pension scheme.

    These booklets were incorrect. They stated that final salary pensions were ‘guaranteed’ and failed to warn of any risks, or tell members that the most important question they needed to consider was whether their employer scheme might be wound up.

    The booklets were launched with a press release hailing them as helping people make ‘safer pension choices’ and that they were being sent to public libraries, Citizens Advice Bureaux, consumer advice agencies and all MP’s for use with their constituents. Members who read this information and relied on it, were lulled into a false sense of security, were not warned of the risks and were deprived of the opportunity to make an informed choice, since the FSA information was incorrect.

    I appealed to the FSA to accept some responsibility for these errors (which were not corrected until December 2002) but they refused. Their double standards are unacceptable – if anyone else involved in the financial services industry told people their money was safe and ‘guaranteed’, without warning of any risks, the FSA would insist on full compensation for the losses suffered.

    Yet they tried to hide behind a number of excuses. These included:

    ‘these were only meant to be generic guides, not to replace advice’ (the booklets do not suggest that anyone needs to take advice)

    ‘we disagree with your definition of the word guarantee’ (how else can you define it?)

    ‘we did not expect anyone to rely on these’ (then why send them to all MP’s and consumer agencies?)

    ‘we were just trying to highlight the important questions that individuals needed to consider’ (but they did not include the most important question – namely might the scheme wind up!)

    John Tiner and Anna Bradley would not even consider the idea that they might have some responsibility for these people’s losses and I believe that is unacceptable. How can there be one rule for everyone else involved in financial services, but another rule for the Government and the FSA itself.

    I urge the FSA to reconsider this issue and encourage the Treasury to face up to its responsibilities in this issue, by agreeing to pay proper compensation to those affected by this situation. I will consider appealing for the FSA Complaints Commission and I am also appealing to the Parliamentary Ombudsman to investigate this situation and look into the role of various Government departments (OPRA, DWP, Treasury and the FSA), with a view to recommending compensation for the losses suffered.

    Dr. Ros Altmann

    In July 1999, the FSA launched a series of consumer guides, designed to help people understand the important financial decisions they may be considering. Two of these guides (‘FSA guide to the risks of pensions transfers’ and ‘FSA guide to the risks of opting out of your employer’s pension scheme’) were aimed at members of final salary occupational pension schemes, who were considering whether to transfer out of their employer scheme, perhaps because they were coming up to retirement age or were worried about the security of their pension if they knew their employer might be in financial difficulties.

    The documents were launched with a press release entitled ‘FSA’s free guides to safe pension choices’. The release says that the FSA ‘has a duty to protect consumers and these guides are designed to help people make better financial decisions for their future’. They were said to have ‘won a ‘Clear English Language Award’ in recognition of their high standard of clarity’.

    These booklets were wrong and misled the public into believing their employer pension was safe, when this was not the case.

    They tell members that final salary pensions are guaranteed’, without mentioning any circumstance in which this might not be the case. No mention of the danger of losing their pension if the employer winds up the scheme or becomes insolvent. No risk warning whatsoever.

    The only risk warnings given are that personal pensions may be unpredictable and depend on investment returns, whereas final salary pensions are guaranteed and give a certain level of pension which will help you plan for your future! These booklets were not corrected until December 2002, so the public was misiniformed by the FSA for many years and lulled into a false sense of security. Members who believed these booklets were lulled into a false sense of security and were prevented from taking action to protect their savings. They have, in many cases, lost their entire pension and these losses require proper compensation.

    If anyone in the financial services industry behaved in this way, the FSA would insist on full compensation for the losses suffered. I tried to point this out to the FSA at a meeting on July 30th with John Tiner, Chief Executive, and Anna Bradley, Head of Retail Themes. They both denied any responsibility for this situation, with a variety of excuses which they, themselves, would find totally unacceptable if a financial services company attempted to use them.

    The excuses ranged from ‘we never expected anyone to rely on this information’ to ‘we do not agree with your interpretation of the word guarantee’ to ‘this was just meant to be generic information and not to replace advice’ and ‘we weren’t here at the time’! Their attitude to these people’s losses was breathtaking and I do not believe they should be able to hide behind statutory immunity to absolve the FSA of any responsibility.

    How can there be one set of standards for everyone in the financial services industry, but a different set of standards for the Government and the FSA itself?

    The FSA claims these booklets were designed to highlight for members the important questions they need to ask or consider, if they were thinking of transferring out of their employer scheme. If this is the case, why did the booklets fail to include the most important question anyone should have asked, namely, ‘is my scheme likely to wind up?’ Everyone makes mistakes, and the FSA admits that this information was missing and has subsequently changed its documents to correct this error. But if mistakes are made and people suffer as a result, then compensation should be paid.

    The FSA tried to tell me that its booklets were not meant to be relied upon and were only meant to provide generic advice. If this is the case, why were they launched with much emphasis on how they would ‘help people make better financial decisions for their future’ and were sent to libraries, Citizen’s Advice Bureaux, consumer organisations and MP’s ‘to use with their constituents’.

    The word ‘guaranteed’ was not qualified in any way in these booklets. The booklets describe final salary pensions as ‘guaranteed’ several times, without one mention of the risk or of any circumstance in which they might not be guaranteed. If financial advisers use the word ‘guaranteed’ for any products, they must also explain the risks, otherwise they will be liable for compensation for losses suffered. I hope that the FSA will reconsider its position and accept its responsibility for the devastating damage which such false assurances have wreaked on tens of thousands of innocent people’s lives. They must be compensated properly for their losses and the Government’s £20million a year ‘Assistance Scheme’ is totally inadequate for dealing with this problem. A sum of £75 million a year for 40 years is now needed, which is not too onerous and I urge the FSA and Government to face up to their responsibilities to put this sorry sage behind us and get on with restoring confidence in pensions.

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