Out-Law / Your Daily Need-To-Know

Out-Law Analysis 5 min. read

Pension Ombudsman addresses withdrawal processes and investment fund communications

In recent determinations, the UK’s Pension Ombudsman (PO) agreed with the approach of providers to processing a tax-free withdrawal and to communicating a member’s retirement options. A third case gives some insight into how the Ombudsman may form a view where there is a lack of evidence.

In one recent case (6 pages / 992 KB), Mr L filed a complaint with the PO against the pension provider due to a delay in processing his benefit crystallisation request.

Mr L’s financial advisor submitted a request to the pension provider for a tax-free withdrawal of £375,000. A fixed protection certificate screenshot, showing evidence of Mr L’s lifetime allowance protection, was provided in conjunction with the request. There was a delay of 10 days during which the provider asked for an original copy of Mr L’s certificate before confirming it would accept the screenshot version. Payment of £375,000 was made to Mr L exactly four weeks after the original request.

Mr L’s financial adviser registered a complaint with the provider, stating that the investment sale request had not been completed within seven days, as the adviser had been informed it would be.

The provider acknowledged that it made errors and apologised for the poor service it provided, paying Mr L £631.51 as a gesture of goodwill. The provider noted, however, that Mr L’s financial adviser did not specifically make a request to sell investments - if it had done so the sales would have been placed at the next dealing point via the provider’s online system. Instead, Mr L’s financial advisor requested a benefit crystallisation event (BCE) which meant that the investment sales would only be placed after all the required documentation was received. The provider noted that Mr L had not suffered a financial loss – he had, in fact, received £14,840.19 more than he would have done had the switch have taken place at the earlier, requested time.

The provider’s service level agreement (SLA) for the entire BCE process at the time was 15 working days. The adjudicator’s opinion was that the provider’s approach was reasonable, and that Mr L did not suffer a financial loss. The deputy PO agreed and did not uphold Mr L’s complaint, stating that the fact that the process took longer in this case was immaterial. Recognising that that this was a non-standard transaction, the PO did not take a hard-line stance where the SLA was exceeded by one day.

The deputy PO also agreed that the provider’s goodwill payments (£500 for poor service plus interest for 10 days late payment of tax-free cash) was appropriate recognition for Mr L’s distress and inconvenience.

Pension Ombudsman decision emphasises importance of investment review

In a second case (22 pages / 2.5KB), Mrs T complained that her fund value fell significantly shortly before her retirement date. Mrs T claimed that this was because the pension provider failed to say that the related investments in the scheme were not suited to her benefit aims.

Mrs T has joined the scheme in 2004 and her benefits were invested in its “Balanced Lifestyle Fund”. Her investments were transferred from the Balanced Lifestyle Fund into one of the provider’s other arrangements in 2015.

In 2021, Mrs T received a series of letters from the provider confirming that she was approaching her selected retirement date. During this period, the value of her fund fell from £7,290.80 to £6,654.90. She complained her benefits had been mismanaged, arguing that the provider had failed to ask her preferred retirement option. Mrs T also complained that no information about the fund was ever provided to her in annual benefit statements, and the series of letters received were not personalised to suit her circumstances.

The provider stated it was not responsible for any investment loss resulting from Mrs T’s fund choice, stating a letter and leaflet sent in 2016 provided all the relevant information and explanation of these funds. The provider noted that Mrs T could have switched funds if unhappy.

The complaint was not upheld as the PO found no maladministration by the provider. Instead, the PO determined that Mrs T ought to have been aware of her investments and fund performance.  She could have reviewed her options or contacted the provider for further information. There was no requirement for the provider to give unsolicited information within annual statements - or at any other time – and there was no evidence that Mrs T sought clarification about funds during previous communications with the provider. Additionally, the provider had informed Mrs T on numerous occasions that her fund value was not guaranteed.

The determination emphasises the importance of members reviewing their investments and retirement options as they approach retirement. The provider’s correspondence confirmed that her fund value was not guaranteed and alerted her to the retirement information on the provider’s portal, as well as the option of obtaining free guidance via Pension Wise.  Mrs T had opted to leave her benefits in the scheme between age 60 and age 65, and the PO considered she had sufficient time to make any enquiries or investment changes.

How the Pension Ombudsman approaches cases lacking evidence

It is often the case that the Ombudsman needs to consider how the those involved in a complaint might have behaved in different circumstances, particularly when deciding whether members have suffered financial loss. A third recent case (22 pages / 3.7 MB) gives some insight into how the Ombudsman may form view where there is lack of evidence.

Here, members of a small self-administered scheme (SSAS) complained about delays in processing their requests to sell their holdings in one of the scheme investments. The members claimed they had suffered financial loss as a result. The members had been trying to make a transfer, but due to the delay proceeds from sales of other investments remained uninvested for a long period of time.

After an unusually long investigation, the PO determined that maladministration by the provider had resulted in the delayed sale. He found this had impacted the members’ ability to reinvest or to transfer funds to alternative pension arrangements.

Loss calculations were required to establish if the members had incurred financial loss, but the members did not accept the adjudicator’s recommendations about the calculations. They instead provided an “investment proposal” from an independent financial adviser (IFA) related to reinvestment of the proceeds. As this was stated to be an “indicative illustration” that may change according to the IFA’s view of the markets and funds at the actual time of investment, the adjudicator felt unable to recommend a loss of calculation based on the specific reinvestment detailed in the proposal.

The complaint was partly upheld as the PO accepted the possibility that the IFA would have changed the investment proposal as a result of the delayed sale. The PO noted that the members had instructed the IFA to provide advice appropriate to their circumstances, so it was more likely than not that they would have accepted the IFA’s amended advice had he altered the proposal.

The PO also found that the situation caused the members significant distress and inconvenience for which they each received payment of £500.

In cases like this where there is a lack of evidence about how parties would behave in different circumstances, the PO will assess the available evidence and form a view based on the balance of probabilities.   Here, the PO did not feel able to determine when the asset sale would have been completed in the absence of the maladministration – because the disinvestment would have been dependent on third parties and their service level agreements. However, as it was likely the members would have followed IFA advice and that this advice may well have changed as a result of disinvestment, the loss calculation could not be based on the IFA’s original proposal.

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