This case study is an anonymised composite based on publicly reported PI claim patterns. It is not actual Apex client data and does not constitute legal or insurance advice. Names, locations and identifying details have been changed. Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority, FRN 724952.
A two-adviser network member IFA practice in the south-east, regulatory revenue around £680,000. Standard mass-affluent retirement-focused work, supported by the network’s compliance framework and centralised investment proposition. The firm had no DB transfer permission; pension freedoms drawdown was a meaningful element of its at-retirement work.
The client was 63 at the point of advice, a widow with a £420,000 defined contribution pension built up over a career in marketing. Her objectives were modest income to bridge the period between retirement and state pension age, with a longer-term plan to gradually draw down the pot through her retirement. The fact-find was thorough and recorded her income needs, expenditure, other resources (a small ISA portfolio and modest savings), and her attitude to risk (cautious-balanced).
The firm recommended flexi-access drawdown into the network’s central investment proposition’s “income” portfolio, with an initial withdrawal rate of approximately 5% of the pot to meet the bridging income requirement, reducing to approximately 3.5% after state pension age. The advice letter was well-structured and recorded the recommendation clearly.
The defect in the advice was the absence of meaningful sustainability modelling. The firm relied on a single deterministic projection at a central return assumption to show the pot would last. It did not run a stochastic projection or a sequence-of-returns analysis. The early withdrawal rate of 5% was, in the central case, sustainable; in the realistic range of downside scenarios, it was not. The advice letter mentioned “sequence of returns risk” but did not engage with it.
Two adverse market periods in the first four years of drawdown depleted the pot materially faster than the central case had projected. By age 70 the client’s projected sustainable income at her original real-terms target was significantly below her actual drawings. She had not adjusted her drawdown in response to the early market falls — and the firm’s annual review, which by then had been delegated to a junior paraplanner, had not recommended that she did.
The client complained.
The complaint went to FOS. The FOS analysed the advice under the COBS 9 suitability framework and the FCA Retirement Outcomes Review principles. The relevant FCA technical guidance on decumulation modelling and the obligation to test sustainability against realistic downside scenarios was central. The FOS concluded the advice had not properly considered the sustainability of the recommended drawdown rate; redress was assessed as the difference between the actual residual pot and a benchmark “appropriate advice” position adjusted for the client’s stated income objectives, the realistic withdrawal rate that would have been sustainable, and the appropriate investment strategy.
Quantum was approximately £67,000.
The firm also faced concerns about the conduct of the annual review process — whether the failure to flag the impact of the early market falls and recommend a reduction in withdrawals was itself a breach of the firm’s continuing duty. The FOS treated this as part of the overall failure rather than a separate head, but it featured in the redress assessment.
Section 5 notification was made on receipt of the FOS complaint. The wording responded subject to the firm’s £10,000 each-and-every excess. The £2m limit was untroubled.
A point arose on the firm’s network arrangement. The firm operated as an Appointed Representative of a network principal; the PI cover was placed at the network level, with the network’s wording applying. The handling of the claim ran through the network’s claims function with the network and the firm’s principal adviser involved. The cover responded but the firm’s experience was that decisions about the conduct of the complaint were made at the network level with limited input from the firm itself. This is a familiar feature of network arrangements and is worth understanding before a claim arises rather than during one.
The FOS-awarded redress was paid. Defence costs (modest in this matter) were paid within the network wording.
A reflection point: the wording responded to FOS-determined awards and to civil claims, with the standard IFA exclusions for fraudulent investment schemes and various market-specific carve-outs. None of those was engaged here.
The redress was paid. The firm reviewed its decumulation-advice process across the at-retirement book; a further three cases were identified as requiring some form of remedial action. Combined exposure across the cohort came to approximately £190,000 over two policy years.
The network’s PI premium (allocated to the firm) rose by approximately 35% at renewal. The firm adopted stochastic modelling as standard for all drawdown recommendations, with downside scenario testing and a documented “sustainable initial withdrawal rate” range applied to each fact-pattern. The annual review process was upgraded with explicit sustainability re-checks.
Pension freedoms claims are growing as the first generation of post-2015 drawdown clients moves through retirement. First, sustainability modelling is not a tick-box; the FCA’s expectations have moved decisively towards stochastic and scenario-based testing for any drawdown recommendation. Second, the initial withdrawal rate carries the most weight of any single decision in a drawdown plan; an over-optimistic initial rate produces the kind of sequence-of-returns risk that retrospective analysis will pick up. Third, the annual review is not a “kept in touch” exercise; it is a continuing suitability check and the firm’s duty does not end at the initial advice. Fourth, for network members, the PI wording, the claims-handling process and the renewal pricing all sit at the network level — understand the mechanics before a claim arises. Fifth, the firm’s documentation should evidence not only what was recommended but why each scenario in the modelling was thought sufficient to displace a more cautious recommendation.
For network-member firms, the broker’s role is partly about understanding the network wording in detail — the trigger language, the excess application, the network’s claims protocol — and ensuring the firm’s interests are well-represented in handling. For directly authorised firms, we approach the IFA market with focus on the specialist insurers that distinguish between modern decumulation-modelling discipline and the looser advice patterns of earlier years. At renewal, the firm’s documentation of process change — including specifically the move to stochastic modelling and the upgraded annual review — is the single most influential factor on the underwriter’s view.
Apex Insurance Brokers serves UK professional services firms and commercial businesses. Call 0117 325 0027, email hello@apexinsurancebrokers.co.uk, or request a quotation.
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