With more than half a million consumers making complaints against financial services companies each year, the simple act of claiming on insurance or remortgaging can turn into a nightmare.

Two of the more extreme examples of poor service include a consumer who did not receive his pension before dying and another who failed to get a mortgage because a bank mistakenly put a phantom debt on his credit history.

The Financial Ombudsman Service (FOS), which acts independently to settle disputes between consumers and financial services providers, says that it received more than 500,000 inquiries from unhappy consumers last year.

Emma Parker, of the FOS, says: “We have seen some quite extreme examples. There are some cases where it is not only a question of financial loss and inconvenience but the distress as well.”

The Bank of Scotland Annuity Service (Bosas), the financial adviser, says that one of its clients was a pensioner in poor health who had been waiting more than three months to receive his pension from Windsor Life but died before he received a payment. Windsor Life is a closed company, which means that it looks after existing policies but does not take on new business.

Service levels with other companies are not much better. Scottish Provident was referred to the Financial Services Authority after its treatment of Susan Hurrell, a cancer victim, was highlighted by Denis Murphy, the Labour MP.

Ms Hurrell had a life insurance policy with Scottish Provident and when she had terminal ovarian cancer diagnosed in December 2004 she rang the insurer to see if she could make a claim. Scottish Provident told her on two separate occasions that she was not covered for terminal illness insurance under the terms of her life policy. But in September 2006, when she rang to renew the policy, she discovered that she did have a terminal-illness clause, which meant that she should be paid the full £60,000, provided that she was given less than 12 months to live at diagnosis.

Scottish Provident admitted its mistake and apologised, but it said that Ms Hurrell was not eligible for a payout because she did not die within 12 months of diagnosis. The FOS agreed, even though Ms Hurrell's doctor confirmed that her life expectancy at diagnosis was less than 12 months.

But it is not only pensions and insurance where things can go disastrously wrong. An administrative error left David Rattray, an online production manager from southeast London, angry and confused when two applications to remortgage were turned down.

He says: “We couldn't work out why, so we decided to obtain an Experian credit report to see if there were any problems. The report came back saying that we had a £3,000 debt to Abbey that was still outstanding. It was appalling and very stressful. You put your trust in the banks and they do this.”

An Abbey spokesman says: “When it came to our attention that a mistake had been made, we rectified the problem within a week. We apologised for the error and also contacted the credit reference agency to ensure that it altered its records. We also offered Mr Rattray compensation for the inconvenience.”

About one in six of the complaints registered with the FOS about banks and insurers relates to administrative problems, totalling more than 8,000 cases last year.

If you want to make a complaint against a financial provider, you need to lodge it formally with the company in the first instance. The company concerned should then send you details of its complaints procedure, which should also include information on how to take the complaint to the ombudsman if you are still not satisfied with the way the company handles your grievance.

The ombudsman's website can be found at www.financial-ombudsman.org.uk and gives details of how to submit a complaint. For tailored advice on a particular complaint, call Consumer Direct on 0845 4040506. Other useful information can be found at www.howtocomplain.com.

Case Study: Pension transfer took months

Mary Berry, of Brighton, East Sussex, says that trying to get her pension transferred from Windsor Life was extremely stressful and left her out of pocket.

Mrs Berry, left, says that her financial adviser, Hargreaves Lansdown, contacted Windsor Life at the end of December to request the release of her pension funds.

The pensioner says that, over the next three months, she and Hargreaves Lansdown were often put on hold for 45 minutes at a time or put through to an answering service. “They were an absolute nightmare to deal with,” she says. “You couldn't contact anybody. I think what got me most was their complete indifference.”

Windsor Life took a month to send Mrs Berry the correct forms to fill out, which meant that she missed out on the chance to secure a better annuity rate.

When Mrs Berry's pension was finally transferred to Norwich Union in early March, Windsor Life provided the wrong valuation figures and sent the breakdown letter by second-class post, despite repeated requests from Mrs Berry to complete the process as quickly as possible.

A spokeswoman for Windsor Life says: “We continue to face some backlog because of an exceptionally high volume of queries from advisers and policyholders. We have implemented additional call-centre capacity to ensure that we return to our normally excellent levels of service as quickly as possible.”

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