The Financial Ombudsman Service has outlined how it calculates redress when it upholds complaints about the mis-selling of pension mortgages.
Pension mortgages enable people to take advantage of the tax concessions associated with pensions by building up a lump sum which can be used to pay off an interest-only property loan.
But the policies carry risks, as the amount of money available at the end of the policy depends on stock market performance and it reduces the amount of the fund available to rely on in retirement.
When deciding whether a pension mortgage was mis-sold, the Fos will look at whether the advice was suitable in view of the consumer’s specific circumstances and needs at the time of sale.
The aim in calculating redress is to put the consumer back, as far as possible, in the position they would have been in had they not been inappropriately advised.
Although the Fos’s starting point is the same as with mortgage endowment mis-sales, calculating redress for pension mortgages is more complex because only the cash element of the pension would have been intended for mortgage repayment and pensions cannot usually be surrendered.
It says it only the most exceptional circumstances – perhaps when both the pension and the mortgage elements are unsuitable – would result in a cancellation of the entire policy and a refund of the premiums paid, plus interest.
Where an existing pension is ‘converted’ into a pension mortgage, the Fos usually decides only the ‘new’ part of the pension should be taken into account when redress is calculated.
Similarly, where the pension contributions are intended to produce a higher cash sum than is needed to repay the mortgage, it disregards the ‘extra’ contributions.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Emily Perryman on 020 7968 4554 or email [email protected].IFAonline
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