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ombudsman news

issue 133

June 2016

ombudsman focus: pension freedoms - the ombudsman's perspective

In April 2015 the government introduced changes aimed at giving people greater flexibility in how they access their pensions. A year on, Phil Miller gives an ombudsman’s perspective on “pension freedoms”.

Phil, there are many different views about these changes. As an ombudsman, what's your view?

There’s certainly been a lot of commentary. Of course, the ombudsman’s role isn’t about taking a view on the new rules in principle. The central factor when I’m making a decision - just like any pension or investment-related problem, or any other problem for that matter - is whether a business has acted in a fair, appropriate way, looking at the customer’s individual circumstances.

so what are you seeing so far?

The government’s figures suggest around a quarter of a million people accessed their pensions in the first year of the new rules. During that time we’ve dealt with around 1,000 enquiries and around 400 complaints. That suggests that so far, only a fraction of people who’ve used the freedoms have encountered problems - or at least, not things their pension provider hasn’t put right in a way they’re satisfied with.

From our conversations with pension providers, we know there’s been a lot of work behind the scenes to make sure they’ve got the right resources in the right places - particularly to deal with the initial demand they anticipated after the changes came into effect. But inevitably - and providers have been upfront about this - delays have been an issue.

what's your approach where there's been a delay?

In general, if we decide a pension provider caused unreasonable delays, we’ll make sure their customer isn’t worse off because of it. This might mean telling the provider to make an extra payment - with interest - if an earlier payment would have been higher, as well as other losses if there’s clear evidence about those.

We’ll also consider whether it’s fair for the provider to make up for any upset and inconvenience the delay may have caused. Of course, the impact of a delay will be different in each case - and far bigger in some than others. It’s been really encouraging to see pension providers making improvements in light of our involvement in complaints - for example, around identifying situations where people need access to their pensions urgently.

consumer complains after admin delays

Mr G told his pension provider he’d had a terminal diagnosis, and asked to cash in his pension. But due to the provider sending out the wrong forms - and other administrative problems - he still didn’t have the money three months later. He’d hoped to take his son on holiday, but this now wasn’t possible.

When Mr G contacted us, we worked with the pension provider to get the payment made without any further delay. We also told the pension provider that the compensation they’d offered didn’t reflect the real distress the delays had caused - and we helped them reach a fair amount.

The provider told us that, following Mr G’s experience, they’d taken steps to make sure they could identify and prioritise urgent cases more quickly.

consumer complains after being told to transfer pension to another provider

Mrs A contacted us when her pension provider - who’d initially offered her flexi-access drawdown - changed their mind and told her she’d need to transfer her pension to another provider.

While Mrs A had been sorting things out, her fund value had dropped and she’d missed out on an investment opportunity. Her pension provider had offered to make up any money that she would have made from the investment during that time, but she didn’t think this was enough.

We told the pension provider they also needed to backdate the fund value - as if they hadn’t mistakenly offered Mrs A flexi-access, and she’d transferred her pension at that earlier time. They also agreed to compensate Mrs A for the trouble they’d caused.

are delays the biggest issue you're seeing then?

The number of people contacting us about delays peaked over the summer of 2015, and has steadied since then. But looking across the year as a whole, delays have made up the biggest proportion of the enquiries we’ve been receiving and the complaints we’ve needed to investigate further.

On the other hand, delays account for a far smaller proportion of complaints than they do of enquiries. I hope that reflects the way we’ve been engaging with pension providers - helping them to understand and apply our approach on their front line, when they first hear from their customers, or we get in touch informally.

in the ombudsman's annual review, it says around a third of pensions complaints you've seen involve administration. Is that true for pension freedoms?

For pensions freedoms, it’s currently a bit lower than a third. But a fair number of the complaints we’re seeing involve general administration and customer service issues. Pensions are a complex area, and consumers and providers have all had to navigate the new freedoms. So inevitably there’s been scope for misunderstandings and mix-ups.

For example, the rules don’t require pension providers to offer all the different types of flexibilities. Sometimes providers get their messages wrong. Sometimes customers are simply frustrated to find they’ll have to go elsewhere to get the specific arrangement they want. Both these scenarios can lead to complaints if things aren’t clarified quickly.

consumer complains that pension provider won't offer flexi-access drawdown

Mr B’s pension provider told him that they didn’t offer flexi-access drawdown. This meant he couldn’t take his pension in instalments - and would instead have to take it as one lump sum, or as a smaller cash sum and an annuity (a form of regular income for life).

Unhappy with this answer - and at a stalemate with his pension provider - Mr B contacted us. We explained that pension providers aren’t required to offer this type of drawdown - and that Mr B had the option of transferring his funds to another provider that did offer it.

consumer complains about income tax deduction

Mr J was unhappy that his pension provider had deducted income tax from his pension lump sum before paying it to him.

We looked at the paperwork the provider had sent Mr J - and decided they’d clearly set out the tax position. But they’d used the wrong payment date and applied a higher administration charge than they should have. The provider corrected the underpayment and compensated Mr J for the inconvenience they’d caused.

what about problems involving financial advice?

One of the new rules around pensions is that providers have to ensure that their customers with valuable pensions get regulated financial advice before being able to access them. This applies to people who’ve got “safeguarded” benefits worth £30,000 or more. Often, the pension plans in question offer far better guaranteed annuity rates than anything available now.

But we’ve heard from people trying to access their pension who are unhappy they’ll have to pay for advice. Some tell us they’re struggling to find an adviser who’s willing to give them advice, meaning their pension provider won’t let them access their pension.

surely these situations are clear-cut?

Once we’ve double-checked the value of the pension, it’s often a case of explaining why the requirement’s there and that we can’t tell a pension provider to waive it. Some of the people we hear from clearly have strong feelings about not being able to access their money - but our independent answer can help the provider and their customer to move on.

consumer complains that he wants to take pension fund as lump sum

Mr S was unhappy that his pension provider wouldn’t allow him to take his pension fund as a lump sum without getting financial advice. He’d approached a number of different advisers, but none would offer him advice.

After confirming that Mr S’s pension had guaranteed annuity rates valued at more than £30,000, we talked through the context of the pension rules - including the measures in place to help protect people with valuable pensions. Mr S was disappointed, but understood why we couldn’t tell his pension provider to waive the requirement.

what about people who've been advised against accessing their pension, but still want to go ahead?

Given it’s only just over a year since the rules changed, we haven’t yet received complaints relating to pensions freedoms that involve so-called “insistent” clients.

But when we’re meeting financial advisers and trade bodies, it’s something they’re telling us they’re concerned about. Wanting to help a client who’s set on using the new freedoms, while believing it isn’t the best course of action in that client’s individual circumstances, is clearly a difficult position to be in.

Looking at suitability more widely, there are a number of ombudsman decisions on our website that I hope will reassure advisers who are giving appropriate, tailored advice and clearly documenting the conversations they’re having with clients.

The FCA has already set out guidance in this area - and it’s something we and the FCA have been talking about with financial advisers when we meet them face to face.

do you hear from people who've previously bought an annuity?

Some pension providers extended their cooling off periods for annuities bought before the 2014 Budget announcement about the pension freedoms. But if someone’s started to draw their pension, there’s nothing they can do at the moment. And yes, we hear from some people who bought an annuity shortly before the pension freedoms came into effect, who feel they should have been advised to hold on a bit longer.

In these cases, we’ll need to consider the timing of the advice as part of looking into the individual circumstances. Realistically, it wouldn’t be fair to expect an adviser to recommend something they didn’t actually have any knowledge of.

Of course, from April 2017 there’ll be a “secondary” annuity market. So further avenues will open up for some people - even though the government has said that keeping an annuity will be the right option in most cases. We expect that we’ll cover any complaints arising from this - and like we would in any other area, we’ll keep in touch with our stakeholders about what we’re seeing.

Update (December 2016): In October 2016 the Government announced that plans for a secondary annuities market won't be taken forward.

consumer complains after buying annuity

Mr L, who’d recently bought an annuity, complained that his financial adviser should have told him to wait until he could take his pension as a lump sum.

We found that Mr L had received financial advice in early 2014 - some time before details about the pension changes were announced. We appreciated that Mr L was disappointed, but we decided the adviser had given appropriate advice based on the information available at the time.

what we can help with

The Financial Ombudsman Service can help with complaints about annuities and investments, as well as the sale of personal pensions. From April 2015 this includes advice to transfer from a "defined benefit" pension scheme to a "defined contribution" scheme.

the complaints we see about pension freedoms - in numbers

issues involved in enquiries about pension freedoms

administration 19
annuities 6.5
can't access pension 8.5
requirement to get financial advice 11
information given about pension 8
exit fees 3
delays 41.5
quality of advice 2
occupational pension scheme benefits 0.5

issues involved in complaints about pension freedoms

administration 14
annuities 13
can't access pension 9.5
requirement to get financial advice 15
information given about pension 10.5
exit fees 5
delays 24
quality of advice 3.5
provider doesn't offer preferred pension option 5
other problem 0.5
  • total pensions complaints settled by an ombudsman’s final decision - 30%
  • complaints involving pension freedoms settled by an ombudsman’s final decision - 6%

  • 4,495 complaints involving pensions
  • 440 complaints involving pension freedoms

  • average uphold rate across all complaints - 51%
  • complaints involving pensions - 32%
  • complaints involving pension freedoms - 25%

1 April 2015 to 31 March 2016

ombudsman news
Phil Miller, senior ombudsman,
at the 50+ Show

ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.