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Monday, October 19, 1998 Published at 19:32 GMT 20:32 UK

Business: Your Money

New pensions review over top-ups

The FSA extends its tentacles into pension top-up plans

UK pension providers have agreed to a second pensions mis-selling review after the Financial Services Authority (FSA) announced the results of a recent investigation into top-up contribution schemes.

Although the FSA said there was insufficient evidence in many cases to determine whether financial advisers had done the right thing, it did find some cases where sales of FSAVCs "could well prove inappropriate".

In response to the findings, the Association of British Insurers (ABI), representing many financial advisory firms, has agreed to conduct a review such cases by December.

[ image: ABI: supports review]
ABI: supports review
The investigation looked at the selling of free-standing additional voluntary contribution plans (FSAVCs) since 1988 - used by workers to supplement their company pension plans and boost their final pension.

It looked at whether financial advisers had "actively and adequately" explained to clients the pros and cons and any alternatives.


The investigation was prompted by accusations that financial advisers had convinced their clients to take out a separate personal pension top-up plan when they would have been better off taking advantage of additional voluntary contribution plans (AVCs) available in their existing company pension schemes.

In some cases, it has been suggested clients may have been been better off not increasing contributions at all for tax reasons.

The FSA highlighted two categories of clients that may be affected:

  • employees whose company plans made employers match their contribution to an AVC on a pound for pound basis - thus quite attractive schemes

  • members of pension schemes with high accrual rates - like the armed forces - where additional contributions can lead to breaking Inland Revenue rules on maximum contributions.

Advice "not good"

"In both instances there is a strong risk that the advice given at the time of the sale was not good," the ABI said in a statement.

Like the general pensions review currently underway, the new one will look for cases where sales of pension plans were unsuitable and where found will provide financial compensation.

However, the ABI says the extent of compensation is unlikely to exceed 100m, well below the the 9.8bn in expected compensation from the general review of personal pension scheme sales.

The FSA says it will continue to monitor advisory firms selling FSAVCs.

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