Pensions disputes: cases highlight clear customer communication importance

Member transfers between plans

The deputy PO did not uphold a complaint raised by a Mr N. When Mr N left employment, his benefits were transferred to a deferred member's scheme, in which the provider applied a large fund discount (LFD) which reduced the annual management charge on his deferred members' scheme benefits. Mr N subsequently applied to take benefits by way of income drawdown and his benefits were transferred to the provider's income drawdown account.

Mr N was informed by the provider that this transfer would be on a ‘like for like’ basis. However, he was later informed that the LFD had been incorrectly applied. Mr N was not entitled to this discount in the deferred members’ scheme nor in the income drawdown account.  Because of this, and other factors, the value of his account was lower than previously stated in an illustration provided to Mr N.

Mr N complained to the provider that the discount should be applied to the income drawdown account. The provider said it had made a business decision to remove the LFD from any plans it should not have been applied to, but they would not request underpaid charges from members affected.

The deputy PO did not accept that the provider had established an agreement to apply the LFD to the income drawdown account. He noted that the provider had apologised for its mistake in applying the LFD to the deferred members' scheme. The apology together with the decision not to recover the underpaid charges and the offer of £500 for distress and inconvenience was sufficient redress for the provider's administrative oversight.

This case demonstrates the continued importance for providers to communicate clearly on charges when a member transfers between plans or arrangements. In this case the deputy PO considered that the provider could have limited the extent of Mr N's disappointment that the LFD did not apply to the income drawdown account by communicating more clearly the charges that would be applicable. However, the failure to do this did not mean that Mr N was entitled to have the LFD applied to the income drawdown account.

Documenting fee structures for new SIPP accounts

In this second case, the provider acquired the pension assets of another business which included Mr T’s self-invested personal pension (SIPP). The provider assured Mr T that this change would not have any effect on his SIPP's investments, administration or fees. Mr T complained about the fees charged by the new provider which exceeded £1,700 – a sum higher than those charged by the previous provider.

This was despite the fact the new provider was not providing financial advice or discretionary fund management services and that their website showed yearly fees would be no more than £400. The provider failed to respond to Mr T's complaints and subsequently went into administration.

Mr T's complaint was upheld. Further action was required by the provider to give Mr T information about its fees and charges. The fees should have reflected the reduced level of services provided by the new provider. The fees significantly exceeded the yearly fee shown on the provider’s website and appeared to be based on a percentage of the SIPP’s value.

In addition, the provider failed to inform Mr T that it had migrated the provision of advice to Mr T to an alternative adviser and that they would be deducting payments from the SIPP to cover the cost of this advice. The provider failed to respond to two separate complaints, despite the fact that there was a regulatory requirement to issue a response.

The provider was ordered to refund Mr T the fees in excess of £400 per year, as this was the amount the deputy PO considered reasonable, and pay interest on those excess fees at the rate of interest applied to the SIPP’s bank account between the dates of collection and the date of repayment. Mr T was also awarded £1,000 for serious distress and inconvenience.

This determination highlights the importance of documenting fee structures when a provider acquires SIPP accounts from another business. The provider was unable to provide contemporaneous evidence of the new fees, nor evidence of the information that was available on its website. Therefore, the deputy PO made a determination about what charges were reasonable in the circumstances for the services provided, and these were less than the provider had charged.

It is also important that members are kept informed of changes to the services provided which they will be expected to pay for – in this case the failure to make Mr T aware they had migrated him to a new financial advice provider, and to respond to his queries about this, also amounted to maladministration.

Delays to transfer process

The deputy PO upheld Mr Y's complaint after his SIPP provider's mistake in providing incorrect information to initiate a transfer-in request caused delay in the transfer process. This resulted in Mr Y suffering financial loss due to a decrease in the value of the funds whilst the delay was ongoing. Mr Y made a complaint and asked the provider to compensate him for his losses. The provider sought to avoid responsibility for causing loss on the basis that it had not breached its standard service level; it had corrected the transfer information within three working days.

Mr Y argued that, had the provider not made its error, there would have been a further £10,488.94 cash available from the transfer for him to use to purchase new investments. The provider's counterargument was that the cost of the investments he had made when he reinvested had also decreased, and so he had actually gained £6,331.71 due to the delay – the argument being that the member’s subsequent actions had more than mitigated his loss.

However, Mr Y argued that his reinvestment was part of a separate set of investment decisions rather than a directly linked transaction – he had deliberately chosen to disinvest and move into cash to benefit from market turbulence, and his reinvestment was in different stock to that previously held.

The deputy PO concluded that, while it is appropriate to consider mitigation in many cases, in this case it should not be used. Mr Y was not bound to trade on any specific day and the purpose of disinvesting and going into cash prior to the transfer was a deliberate move so that Mr Y could take advantage of prevailing investment conditions – leaving the funds in cash until he considered it most advantageous to enter the market again.

The deputy PO agreed that if the provider's mistake had not occurred, Mr Y would have had a further £10,488.94 with which to purchase new stock and would have obtained additional units to this value. The deputy PO ordered the provider to pay Mr Y £10,488.94 plus interest at the Bank of England rate at the time the transfer occurred, as well as £500 for distress and inconvenience.

The PO has considered financial injustice arising out of disinvestment delays in many cases and the duty for complainants to mitigate their loss is often emphasised. The facts in this case are interesting as the member was able to persuade the deputy PO that the transfer and subsequent reinvestment were separate events – he had waited almost a week after the funds became available to reinvest them, and the deputy PO did not want "to absolve the provider of responsibility for its mistake".

Providers should also note that the deputy PO agreed with the adjudicator that the provider could not avoid responsibility for causing loss on the basis that it had not breached its standard service level. The funds would, more likely than not, have been disinvested on the same day but for the provider's mistake.