Personal Finance Society news update from 26th April to 9th May
Taxation and Trusts
TAXATION AND TRUSTS
Deciding claims disputes on a fair and reasonable
(AF4, FA7, LP2, RO2)
This is the case which has been described under the heading
"morality can trump law" and as such has caused some consternation
in legal circles. The case is that of R (Aviva Life and
Pensions) v Financial Ombudsman Service (2017) EWHC 352 and it
concerned Aviva declining a terminal illness claim on the grounds
The facts of the case were as follows. On 12th
November 2013 Mr McCulloch took out a single life policy with
terminal illness benefit with Aviva. In his application he
did not disclose that he had been consulting his GP about possible
mental health issues since September that year and that he had been
referred to a consultant psychiatrist and for a CT scan because of
his family's concerns about changes in his personality.
Sadly, Mr McCulloch's condition was diagnosed as terminal following
the CT scan and by December 2013 he was in a hospice at which point
his family made a claim under the policy. Aviva declined the
claim on the grounds of misrepresentation and avoided the
A complaint was submitted to the Financial Ombudsman Service
(FOS). The FOS accepted that, if the case went to court,
Aviva would have been entitled to avoid the policy on the grounds
of misrepresentation; nevertheless it made an award in Mr
McCulloch's favour on the basis that, given the illness which he
was suffering, he could not have been expected to make the same
disclosures that a reasonable person would be expected to make.
Unsurprisingly, Aviva sought judicial review and an order to
quash the FOS's decision. It is known that the FOS makes
decisions on what is a fair and reasonable basis. Aviva argued that
in making a decision on this basis the FOS should still have taken
account of relevant laws, regulations, codes of practice and
industry standards. The Judge agreed that the FOS should have
taken account of all the laws and regulations. However, he
still found that the FOS was entitled to depart from those legal
guidelines, provided it gave reasons why.
Aviva also argued that the FOS decision was irrational and
outrageous and that no sensible person could have arrived at it but
the Judge disagreed with this on the grounds of the unusual
circumstances of the case. However, the Judge decided that, while
the decision itself may not have been unreasonable, the problem was
that it was not supported by careful reasoning. For this reason the
FOS decision was quashed and the case was remitted back to the FOS
for a fresh determination. We await this new determination
It seems quite extraordinary that the Judge has determined that
the FOS is not bound to follow the law and regulations when
deciding what is fair and reasonable, as long as it provides
detailed reasons for any departure from the said law and
regulations. Clearly we have not reached the end of this case
yet but life offices must be concerned about the ease with which
the Ombudsman apparently discarded the well-established legal
principles concerning disclosure and misrepresentation in favour of
what he considered to be fair.
Collective funds march 2017 IA statistics
(AF4, FA7, LP2, RO2)
The Investment Association has just published its monthly statistics for March 2017. Like the February
numbers, the March net sales reflect a renewed appetite among
retail investors after a disappointing 2016. Net retail sales have
been positive since last August after a three-month run of
Brexit-inspired outflows. This month's highlights include:
- Net retail sales for the month were £4,036m, up (a revised)
£1,796m on February. Gross retail sales were up £6,196m on
February's figure, at £22,475m, but redemptions also rose
significantly - from £14,483m to £18,439m, probably a reflection of
year-end CGT planning. For the first quarter net retail sales were
£6,646m, the highest quarterly level since the first three months
- Net institutional sales for March rose from £1,711m to £3,569m.
A year ago, there was an outflow of £86m.
- The net inflows helped lift total funds under management (FUM)
to £1,087.9bn, the fourth consecutive month a new record has been
set. Across the year, the FUM increase amounted to 16.7%, mainly
due to market movements.
- Equity was the best-selling asset class, with net retail sales
of £1,739m, the second highest level ever recorded. Mixed asset
came in second, with net sales of £818m. Fixed income completed the
top three with net retail sales of £720m. Even the least popular
asset class, property, drew in a net £52m.
- The most popular sector in terms of monthly net retail sales
was UK All Companies. Yes, the mega-sector which so often attracts
the biggest net redemption figure produced £650m of net inflow, the
first time it has topped the sector charts since December 2013. It
is quite a reversal: in March 2016, UK All Companies suffered net
retail redemptions of £824m. Targeted Absolute Return took second
place (£381m), Global was third, £ Strategic Bond was fourth and UK
Equity Income, fifth.
- ISA net flows were £343m, reversing last month's £143m outflow.
It was only the second month of positive numbers in the last
twelve. However, April is likely to also show a net inflow.
- The total value of tracker funds rose 3.9% to £148.9bn, meaning
that they now account for 13.7% of the industry total. The
corresponding figure for March 2016 was 11.2%. Tracker fund
net retail sales amounted to £1,720m - 43% of all net retail
The turn of the tax year often produces good net retail sales
figures and 2017 was no exception.
PPF to increase fraud compensation levy
(AF3, FA2, JO5, RO4, RO8)
In a press release the PPF confirms plans to raise
Fraud Compensation Levy in 2017/18 for the first time in 5
The PPF, which runs the Fraud Compensation Fund (FCF), has been
notified of a number of possible claims which may come to the FCF
in the next few years. Therefore, with forward planning in mind and
to smooth the impact to schemes over time, the PPF is raising a
levy of 25p per member - the same as in 2012/13. The levy is
expected to raise around £5 million in total.
Delay of spa announcement
(AF3, FA2, JO5, RO4, RO8)
Section 27 of the Pensions Act 2014 reads as follows:
"(1) The Secretary of State must from time to time-
(a) review whether the rules about pensionable age are
appropriate, having regard
to life expectancy and other factors that the Secretary of State
(b) prepare and publish a report on the outcome of the
(2) The first report must be published before 7 May
You might think that sounds quite categorical - the word "must"
occurs twice - but reports, including from the BBC, say that
the government will not meet the deadline. There is no indication
of this on the DWP website, but "sources" are claiming that
pre-election 'purdah' rules prevent any announcement from being
A somewhat similar argument was thrown out by the High Court
last week. In that case, the government argued that purdah
prevented it from publishing draft air pollution plans, even though
the High Court had ruled last November that DEFRA should publish
its plans by 24 April 2017. In giving his decision, Mr Justice
Graham said that the government could not simply use purdah as a
"defence...not to comply with court orders…It is not a trump card
to be deployed at will by one litigant". While purdah is an
established practice, it has no specific legislation behind it.
Given the controversy already surrounding the future of the
pensions "triple lock", it is understandable that the government
wants to divert attention away from state pension issues. Bringing
forward the increase in state pension age to 68 by seven years, as
was proposed by the final Cridland Report, is not an obvious vote
The High Court refused the government right to appeal in last
week's case, although the government could still go directly to the
Court of Appeal. The DWP may be awaiting the next steps in the
DEFRA case before making any (non-) announcements about state
Finance bill amendments
(AF3, FA2, JO5, RO4, RO8)
In view of the impending election, the government has backed off
from reducing the money purchase annual allowance (MPAA) from
£10,000 to £4,000 from this April.
While this change was included in the government's Finance (No
2) Bill 2017, in the latest government amendments this clause has
been left out.
The clause, which would have cut the tax-free dividend allowance
from £5,000 to £2,000 from April 2018, has also been left out.