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ombudsman news

issue 146

November 2018

case studies – complaints involving “defined benefit” to “defined contribution” pension transfers

Over the years, we’ve received small but steady numbers of complaints from people who’ve transferred out of their workplace pensions into private schemes. This includes people giving up their “defined benefit” (DB) pension – based on their salary and years of service– in return for a cash value. Since the introduction of pension freedoms in 2015, we’ve heard from growing numbers of people who have – or who want to – transfer their pension into a “defined contribution” (DC) scheme. This enables them to access their pension pot more flexibly than they could have done before 2015, when the majority of people either had to buy an annuity, giving them a regular income for life, or enter into income drawdown, which still had withdrawal limits.

The benefits that people are entitled to under DB schemes are generally very valuable. If the “guaranteed”, or “safeguarded”, benefits are worth more than £30,000, people have to get financial advice before being able to give them up. And the FCA has said that financial advisers should start from the position that people will be better off not transferring – something it’s repeated in its feedback and final rules and guidance on pension transfer advice, published in October 2018.

Many of the complaints we receive about pension transfers centre on delays – with people telling us they missed out on higher transfer values because a financial adviser didn’t act quickly enough. The next biggest areas of complaint are administration and the suitability of advice.

We also hear from small numbers of people who’ve responded to cold calls from unregulated pension “introducers”. These complaints often fall outside our remit, meaning we don’t have the power to look into them – and can’t help people get back money they’ve lost.

These case studies are aimed at providing clarity about how we approach the complaints we see – illustrating the range of issues involved, and the types of factors we consider when reaching our decision. In general, if we uphold a complaint, we’ll tell the adviser to make sure their customer is, as far as possible, in the position they would have been in if the error hadn’t happened. This might mean making up any investment losses caused by unreasonable delays, or by an unsuitable transfer.

Pension transfer redress calculations can be complex, and the assumptions businesses need to use are published by the FCA. We’ll also consider whether a business should pay compensation to reflect the non-financial impact of their actions – such as any upset or inconvenience their customer experienced.

case studies

  • 146/1 - “I thought I’d get cash from my pension to start my new business – but then my adviser refused to do the transfer”
  • 146/2 - “I lost four years’ worth of income because I listened to my adviser and didn’t transfer my pension”
  • 146/3 - “I lost £50,000 because an adviser took too long to tell me they wouldn’t help me.”
  • 146/4 - “I was given wrong information about my pension to persuade me to transfer”
  • 146/5 - “My pension was transferred overseas. Was I given good advice?”
  • 146/6 - “I took advice to transfer my pension – now I’m losing money and can’t contact my adviser. What should I do?”
  • 146/7 - “I did half of the work on my pension transfer. Why should I have to pay the full price to my adviser?”
  • 146/8 - “My new adviser says I got bad transfer advice two years ago. Can I have my money back?”

“I thought I’d get cash from my pension to start my new business – but then my adviser refused to do the transfer”

Mo contacted us after a dispute with her financial adviser about accessing the cash value from a defined benefit pension scheme.

She explained her previous employer had offered an enhanced transfer value (ETV) to transfer her pension to an alternative pension arrangement. The pension trustees had paid for a financial adviser to advise Mo on the suitability of the transfer.

Mo told us that, at the first meeting with the adviser, she’d said she wanted to withdraw the full ETV amount as cash to help set up a new business. She remembered the adviser saying they would be able to arrange this.

Then, in the adviser’s suitability report, they’d said that the transfer wasn’t suitable for Mo’s circumstances. So they wouldn’t help her with the transfer, or provide the confirmation needed for the trustees to approve the transfer.

Mo felt the adviser had led her to believe the transfer would go ahead. She said she’d already made important decisions relating to setting up her new business – including leaving her part-time job and buying a new small van. Upset she couldn’t take her plans forward, she asked us to look into her concerns.

how we helped

We explained to Mo that the adviser was only responsible for advising whether to take the ETV or not. They weren’t responsible for the initial decision to allow the transfer, or to allow the cash withdrawal of its value.

We looked carefully at Mo’s circumstances and the factors the adviser had taken into account when they considered the suitability of the transfer. We could see they’d advised against the transfer on the grounds that Mo’s existing pension offered valuable guaranteed benefits. The adviser thought there was a high risk that her proposed business venture wouldn’t succeed, in which case she’d lose her pension fund. They’d noted she was approaching the scheme’s retirement age, and only had one other small private pension. In light of all Mo’s circumstances, we didn’t think the adviser’s conclusions were unreasonable.

Mo had clearly wanted to withdraw the full cash amount of the ETV. And we thought it was likely she would have wanted to go ahead in spite of receiving advice against it. Because this would have presented risks – both for Mo and for the adviser – we also didn’t think it was unreasonable for the adviser to decide not to carry out Mo’s transfer as an “insistent client”. And they were under no obligation to do so.

We then looked into Mo’s concerns that she’d been given the impression in her first meeting with the adviser that the transfer would go ahead. Mo said that, in that meeting, they’d told her she’d need to sign waiver forms if she chose to go against their advice. She also told us that the adviser had said they were treating her case as urgent, as they recognised she needed the money from the transfer for her new business. Mo said she’d continued to be told this even after being told the adviser had concluded the transfer was unsuitable.

The adviser told us they never accepted business on an “insistent client” basis. And we thought that if Mo had told the adviser about what she was planning to do in anticipation of getting cash from her pension, they would have advised her against taking any action before the transfer decision was made. So we didn’t think the adviser was responsible for Mo’s decision to leave her job or buy a new van.

However, the adviser didn’t dispute Mo’s recollection of the conversations they’d had throughout their engagement with her. We didn’t think these conversations were consistent with the adviser’s stated approach of not accepting insistent clients.

In our view, the adviser hadn’t managed Mo’s expectations for a good couple of months – which had led to even greater disappointment when she was eventually told they wouldn’t help her access the money to put toward her business.

We thought that, while the adviser hadn’t caused any unreasonable delays in the process, they should have been clearer from the very first meeting about how far they’d be willing to help Mo with her pension. So we told them to pay compensation in our moderate band in recognition of the upset caused.

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“I lost four years’ worth of income because I listened to my adviser and didn’t transfer my pension”

Dina told us she’d lost out because of financial advice she’d received about her pension. She explained the advice had been arranged by her employer, after they’d offered her an ETV to transfer out of their defined benefit scheme.

Dina said she’d told the adviser she wanted to take a low-risk approach, and that she’d intended to work for another six years. The adviser had said the transfer could leave her worse off in the long term and had advised her against it. They’d been prepared to arrange the transfer on an “insistent client” basis, but Dina explained she hadn’t wanted to take that option.

Now, four years on and even closer to retirement, Dina thought she might have made the wrong choice. She thought she would have been better off if she’d bought an annuity back then, and been getting income from that in the meantime. So she asked us to look into the advice she’d received.

how we helped

We explained to Dina that, both at the time she’d got advice and currently, the regulator said that advisers should start with the assumption that a transfer wouldn’t be in her best interests with a pension like hers.

We looked at all the documentation the adviser sent us relating to the conversations they’d had with Dina and their analysis of her circumstances. We could see they’d set out very clearly the point at which the benefits she’d receive from her employer’s scheme would “catch up” with those she’d have got if she’d bought an annuity. And they had explained why, given her financial position and good health, they thought staying put was the better option. While Dina might have been better off in the short term, the yield the transfer value needed to achieve to match the scheme benefits was greater than the level of risk she’d said she could accept.

We acknowledged there would always be a trade-off between someone receiving money while they were still working, and receiving it later once they’d retired. In Dina’s circumstances, we agreed with the adviser that, based on the evidence available, it had been in her best interests to advise against the transfer. We were satisfied the adviser had applied the regulations as they should, and had set out their thinking clearly and fairly.

We explained our conclusions to Dina and didn’t tell the adviser to take any action.

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“I lost £50,000 because an adviser took too long to tell me they wouldn’t help me.”

Saul told us about the problems he faced when his financial adviser took too long to tell him they wouldn’t give him advice about his final salary pension.

Saul said he’d been given a guaranteed cash ETV of over £650,000 if the transfer completed within 90 days. He’d then approached an adviser for help. But after waiting for an answer – chasing up in the meantime – the adviser had said they wouldn’t give him advice and suggested he approach someone else.

Saul explained he’d only got the adviser’s answer two weeks before the guarantee period ended. And he hadn’t thought there was enough time to find another adviser. So he’d instead asked the adviser to reconsider – but five days before the guarantee expired, they’d said again that they wouldn’t help.

Saul said he’d eventually found another adviser, but it was after the 90-day deadline. And when he’d asked for an updated ETV, the cash value of the transfer had dropped by more than £50,000. Saul had then proceeded with the transfer through another adviser at the reduced value.

Saul said he’d complained to the original adviser, but they’d replied that they hadn’t done anything wrong. He now wanted our help to put things right.

how we helped

The adviser told us that following the pensions freedoms legislation in 2015, they’d seen a major increase in people asking for transfer advice. As a result, they’d needed to revise their service agreements to cope with demand.

We acknowledged this was consistent with what we’d heard from other firms – and relevant guidance didn’t set out a specific timeline for transfers. 

However, we pointed out that in Saul’s case, there was a clear timeline indicated by the guarantee period. The adviser knew the transfer needed to be completed within 90 days. And in our view, they should have realised that delaying giving Saul their answer would leave him with very little time to find another adviser, and then to complete the transfer. This was especially the case given that other advisers might well have had similar pressures on their time and resources.

The adviser had the right to refuse to advise Saul about his transfer. But we didn’t think it was fair or reasonable, given they knew the clock was ticking, for them to have taken so long to reach that decision.

We told the adviser to pay Saul the difference between the two ETV values, taking both investment growth and income tax deductions into consideration. We also told them to pay compensation in our moderate band to reflect the trouble they’d caused.

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“I was given wrong information about my pension to persuade me to transfer”

Sally contacted us about a pension transfer that had taken place several years ago. She had a number of pensions from previous employers – and had asked for financial advice about possible transfers and consolidation of her funds.

Sally told us that the adviser had recommended she leave most of her pensions as they were. But they’d said that one of the funds, which had been closed by the employer in question, had a significant shortfall. She remembered the adviser saying this could lead to losses in the long term – and recommending that she  transfer the cash value into a personal pension.

It was now a few years later, and Sally had recently met one of her ex-colleagues. He’d told Sally that the shortfall had been put right, and that additional payments had been made to clear the deficit.

Sally had realised that this had happened before her pension transfer took place.  She was upset that the financial adviser hadn’t told her about this – or about the availability of the Pension Protection Fund (PPF), which could have compensated her if the scheme had become insolvent. 

Sally told us she’d complained to the adviser, but they’d stood by the recommendation of the transfer – and said she hadn’t suffered any financial loss. But Sally felt she’d been misled and asked us for help.

how we helped

We looked at the details of Sally’s original pension and the concerns about the shortfall in funds. We agreed the deficit would have been worrying – especially for someone with a cautious attitude to risk, which Sally had, according to the “attitude to risk” questionnaire she’d completed with the financial adviser. Sally had also told the adviser she was prepared only to accept small losses to her pension.

We considered the circumstances leading up to the transfer. And in our view, the commitment to clear the shortfall, along with the prospect of recourse to the PPF, were important details that could have affected Sally’s decision to go ahead with the transfer.

The financial adviser argued that, because Sally had other pensions, she ought to have known about the protections available. However, we pointed out that the fact Sally had a number of pensions didn’t automatically mean she knew – or should be expected to know – all about pensions and how they might be protected. She’d gone to the IFA for professional advice because she needed help with making the best of her retirement.

We compared the guaranteed benefits of Sally’s occupational pension to those offered by the new scheme. We could see that the occupational pension offered a guaranteed monthly payment – whereas the pensions she’d transferred into didn’t.  We also noted that Sally was nearly 15 years away from her pension at the time of the transfer – and that a lot could happen to her finances in that time.

We decided, on balance, that the advice Sally had received on the transfer hadn’t been appropriate for her. So we told the financial adviser that they needed to pay redress in line with the FCA’s guidance.

We also told the financial adviser to pay Sally compensation in our moderate band to reflect the upset they’d caused. 

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“My pension was transferred overseas. Was I given good advice?”

Chris contacted us with concerns about what had happened to her pension. She told us she’d received a cold call from a pension “introducer”, who’d offered to refer her to “specialists” who would be able to make her pension “work harder” for her leading up to her retirement. She’d agreed for her details to be passed on to two separate financial advisers – the first for advice on her pension transfer, and the second for advice on the investment of the transferred funds.

Chris told us she was currently a foster carer, but had previously worked for her local council for over 20 years, during which time she’d been a member of its pension scheme. The first adviser had recommended Chris transfer her funds out of the council scheme, saying she’d get better death benefits and flexibility elsewhere. The second adviser had then arranged for the funds to be invested in a Qualifying Registered Overseas Pension scheme (QROPS).

Chris said that, following the completion of the transfer, she’d met face-to-face with a local adviser and told them what had happened. They’d told her she’d been given bad advice, because the guaranteed benefits from the council’s pension would have far outweighed the potential return from the QROPS investment. Worried, Chris asked us to look into her concerns.

how we helped

When we looked at all the paperwork Chris sent us, we saw that the introducer and the adviser who’d arranged for her funds to be invested worked for the same company. This company wasn’t regulated by the FCA, which meant we didn’t have the power to consider a complaint against it.

The adviser who’d arranged the transfer was FCA-regulated. Initially, the adviser disputed whether we could consider Chris’s complaint, saying it was outside our remit. We explained that from 6 April 2015, the Regulated Activities Order had been amended to allow us to consider complaints about the advice to transfer from DB occupational pension schemes to DC occupational pension schemes. As the advice Chris was complaining about took place after this date, we were able to look at her complaint about the transfer.

The adviser maintained they’d had nothing to do with the QROPS investment, so they couldn’t be held responsible for what Chris did with her funds. However, we concluded they’d known, or at least should have known, about the overseas investment when they’d considered the suitability of the transfer. The adviser should have been aware of Chris’s objectives in transferring her pension funds – including what she was planning to do with the money.

Chris wasn’t due to retire for a few more years. We noted that she hadn’t actively been looking to change her pension arrangements – and had only taken action following the cold call from the unregulated introducer.

We asked the adviser why they’d reached the conclusion that the transfer was suitable. They told us that that Chris had wanted to get maximum flexibility from her pension, and that this had been a key objective of the transfer. They also pointed to the enhanced death benefits that she’d have been entitled to under the new arrangement.

We reviewed the information Chris had provided about her circumstances. She was due to retire in a few years – and the estimates the adviser had used showed she had a very high probability of surviving to this date. So we weren’t sure why the adviser had put such emphasis on the enhanced death benefits. In addition, the risk profile questionnaire the adviser had completed showed Chris had a moderate attitude to risk. We didn’t think the high-risk overseas scheme the adviser had recommended was consistent with this profile.

Given everything we’d seen, we didn’t think there was any reason for Chris to have transferred her pension when she did – rather than waiting until she  actually retired, when she could consider her options in view of her circumstances then. So we decided she shouldn’t have been advised to transfer her pension

We told the adviser to put Chris in the position she would have been in if she  hadn’t received the unsuitable advice, using the regulator’s redress guidance.

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“I took advice to transfer my pension – now I’m losing money and can’t contact my adviser. What should I do?”

Hazel contacted us after receiving a letter about the self-invested personal pension (SIPP) she’d taken out a couple of years previously. This letter said the fund administrators had gone into administration, and a new one was taking over – and set out options for what she could now do with her funds.

Hazel told us she was concerned that the SIPP hadn’t actually been the right option. She explained she’d retired early on medical grounds from the school where she’d worked, and taken financial advice at the time from an adviser based in her hometown. She said the adviser had recommended she transfer from her employer’s pension scheme into the SIPP, so she could get a tax-free lump sum to clear her debts.

Now she’d turned 60, Hazel had been expecting a statement with more details about how much her pension was worth – so she could begin to draw a regular income from it. But all she’d received was the letter about the new fund administrator.

Hazel said she’d tried to get in touch with the companies listed on her paperwork, but hadn’t yet had a response. Worried she’d lose all her money, she asked us to contact the companies involved, and to tell her whether they’d done the right thing. 

how we helped

We looked closely at the paperwork Hazel sent us relating to the advice she’d been given when she retired. We noticed that, although the advice firm seemed to have an office in Hazel’s hometown, its head office – which was clearly listed on its letters and the application form Hazel signed – was in Cyprus.

We asked the advisers for their records about Hazel’s pension, as well as more details about their status. From the information they sent us, we established that they were regulated by the Cyprus Securities and Exchange Commission. We checked this information against the FCA’s records. The FCA didn’t have details of any UK establishment for the advice firm. It confirmed that as the adviser firm had an “EEA authorised” status, they could operate in the UK under Cypriot supervision.

Based on what we’d seen, we decided the adviser didn’t fall within our remit. We explained to Hazel that we didn’t have the power to look into her complaint. But we put her in touch with the Cypriot ombudsman service, so they could investigate her concerns.

Hazel was still unsure what to do about her pension, in light of the letter she’d received. We suggested she discuss her options with the new scheme administrators – and that she might want to consider getting further independent financial advice.

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“I did half of the work on my pension transfer. Why should I have to pay the full price to my adviser?”

Nic contacted us about the cost of getting advice about a pension transfer, saying he’d received a very poor service. 

Nic explained he’d approached an adviser for advice about transferring his two DB pensions into a single SIPP. He said he’d initially thought things were going through – but after months of delays, he’d complained to the adviser about the length of time the transfers were taking.

Although the adviser had now completed the transfers, Nic felt he’d lost out on the growth of his investments. He asked us to get him compensation for the money he felt he’d lost, as well as compensation for the delays. He was also concerned he’d ended up doing a lot of the work himself – and didn’t think it was right he was having to pay the adviser’s full fees. 

how we helped

We looked into the correspondence between Nic and the adviser. Nic had responded to an advert from the adviser saying they could help people access their pensions when they turned 55. Nic had got in touch with the adviser three months before his 55th birthday, saying he wanted to do that. We noted that the adviser had advised Nic against the transfer, but had agreed to do it on an “insistent client” basis.

Two months after Nic contacted the adviser, they still hadn’t got the information they needed from one of Nic’s SIPP providers – and suggested he contact them himself to speed things up. Nic had had to phone the provider to get the information and pass it on. There had then been further delays getting additional information from the second SIPP provider, following confusion about whether it had already been provided. The adviser had used the wrong pension plan number, causing difficulties and delays in one provider finding Nic’s details, and initially sent requests to the wrong business.

We understood that Nic’s circumstances were more complicated than some people’s – due to having to transfer two separate pensions, with different administrators, into a single new product. But based on what we’d seen, we decided that much of the delay had been caused by poor administration on the adviser’s part. And Nic had done more work than he should have to keep things moving. In our view, five months was an unreasonably long time.

So we told the adviser to put Nic back in the position he would have been in if the transfer had been completed by his 55th birthday. We said that their calculation should consider both the lost investment returns for the period between his birthday and the transfer date, and a 50% refund of their fees.

After looking at the figures, the adviser showed us that Nic hadn’t lost out financially as a result of the delay. But they agreed to give Nic the refund of fees we’d suggested, as well as to pay him compensation in our moderate band for the upset and inconvenience he’d experienced as a result of their mistakes.  

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“My new adviser says I got bad transfer advice two years ago. Can I have my money back?”

Dani asked us to look into the pension transfer advice she’d received from an adviser, after her former employer offered an ETV to deferred members of its pension scheme.

Dani explained that, at the time, she’d wanted to use cash from her pension so she and her husband, who was also planning to retire, could go travelling. However, another adviser had since reviewed the couple’s finances, and told her she shouldn’t have given up her DB pension.

Dani had raised her concerns with the original adviser, but they’d said they’d done nothing wrong. Worried she’d been rushed into making a decision – and concerned the adviser might have had an incentive to complete the transfer – she asked us to look into her complaint.

how we helped

We looked at all the documentation Dani had given the adviser, including the details of her and her husband’s other pensions and investments.

We could see that while the transfer value was significant, it made up a comparatively small part of their overall portfolio of assets, including other pension provision. The critical yield required to match the scheme benefits was also reasonable.

As Dani didn’t have any dependants or other financial liabilities, it didn’t seem the transfer would pose a risk to her financial security in retirement. The risk of the benefits produced by the new arrangement being lower than the scheme benefits was relatively low – especially if the enhancement was taken into account. And along with added flexibility in accessing the pension funds, there was the real prospect that if investment growth exceeded the low critical yield, they could be better.  In their recommendation report, the adviser had also clearly explained that Dani would be losing the guaranteed benefits in her existing pension.

We acknowledged Dani’s concerns about having to make a decision quickly. In fact, we thought it was likely that the ETV offered by her employer had been a key factor in her doing so. If she hadn’t transferred by the deadline, the transfer value would have been reduced by £30,000.

However, the adviser hadn’t been responsible for setting the timeframe in which Dani needed to make her decision, or for the ETV offer. They were only responsible for advising on the suitability of the transfer. And as the fee wasn’t contingent on the transfer going ahead, there was no incentive for the business to make an unsuitable recommendation.

We appreciated that Dani’s new adviser took a different view about her options. But we explained that this didn’t mean that the original adviser hadn’t acted in her best interests at the time. Given everything we’d seen, we concluded Dani hadn’t received unsuitable advice. So we didn’t tell the original adviser to take any action.

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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.