Pensions disputes: market upheaval feeding into disputes landscape

Out-Law Analysis | 27 Jan 2023 | 3:38 pm | 9 min. read

Recent determinations by the UK’s Pensions Ombudsman (PO) highlight the problems that can arise when transfers or fund switches occur at times of upheaval in financial markets.

As ever, these determinations show the importance of providers communicating clearly with members. The decisions also demonstrate that members themselves need to be engaged with their pension arrangements and the relevant terms and policies.

Member responsibility for investments

The PO dismissed a complaint brought by a Mr N, who was unhappy that the lump sums he received from two pension plans with the same provider were lower in value than the quotations he had received.  He also said he had insufficient time to decide what to do with his plans before he reached age 75.

The case considers some of the complaints that may arise where members have seen fund values fall during the Covid-19 pandemic – and more recent market turbulence during 2022 may give rise to similar complaints in future. The PO’s decision shows that he expects members to take responsibility for their investment choices and the options open to them in line with product terms.

Mr N contributed towards two plans which could not remain invested after his 75th birthday in May 2020. In November 2019, six months before he reached 75, the provider wrote to Mr N about his options. At Mr N’s request, the provider issued lump sum quotations in January 2020, with a note confirming that the figures were not guaranteed. When it did not hear from Mr N, the provider sent follow up correspondence in early March 2020. 

During a telephone conversation to discuss the available options, the provider explained that the lump sum values had fallen due to the impact of Covid-19 on market conditions. Mr N completed forms, indicating that he wanted to take both plans as lump sums, and the provider received these on 18 March 2020. Payment was delayed until 28 April 2020 because there was a delay verifying Mr N’s identity. The payments were approximately £27,600 less than the amounts in the quotation. Mr N complained that the amounts were not fair and reasonable and that funds should have been invested in a way that reduced risk.

A finding of maladministration is required for a complaint to be upheld by the ombudsman

The provider advised Mr N that he had been responsible for any decision on how the funds were invested. He had been able to switch funds at any time. Although it was no longer a legal requirement for benefits to be taken at age 75, the provider was not required to alter the end date for Mr N’s plans.  The provider carried out a loss assessment which confirmed that Mr N was not disadvantaged by delays caused by the identity checks.

The ombudsman dismissed Mr N’s complaint. He was satisfied that the reduction in the fund value was not the result of any action or inaction by the provider. He noted the unprecedented impact of the Covid-19 pandemic and the severe and lasting impact on financial markets. The provider contacted Mr N six months before the plans’ end date, and this gave Mr N sufficient time to consider his options. If Mr N wanted to remain invested with the provider or to transfer elsewhere in order to allow fund values to recover, he could have done so.

Mr N said that the provider should have exercised its discretion to switch to lower risk investments before the plans ended to mitigate against the impact of market uncertainty, in particular because he had been a plan member for 38 years. Mr N also argued that ending the plans when members reached age 75 was discriminatory because it left older members exposed to prevailing market conditions.  However, the PO dismissed these claims and concluded that the provider acted correctly in following the relevant plan rules. In the absence of rules allowing providers to treat members differently based on the size or duration of their investments, action favouring one investor over another would be inappropriate.

Degree of proactivity needed from members

Where members request transfers or fund switches during periods of market uncertainty, clear communication by providers with members about the fund values which will apply and the relevant deadlines is particularly important. In a second recent determination, the PO dismissed a complaint related to fund switching by a Miss R, finding that the onus was on her to be proactive in her approach and take steps to ensure a time critical request had been received.

Miss R had complained that the provider failed to process her fund switch when she believed it had been submitted, and that this caused her financial loss.

On 17 March 2020, Miss R telephoned the provider for assistance with the fund switch process. She was informed that if the switch was submitted before noon, the price would be based on the following day’s close of business price. Miss R then submitted a fund switch request.

On the afternoon of 18 March, Miss R called the provider and reported that she had not received a switch confirmation. The provider confirmed that the switch request had not been processed. Miss R submitted a further request during the call.  She also raised a complaint and asked for the fund price to be backdated as if the request had been made on 17 March. An automatic email was sent to Miss R acknowledging her switch request. In accordance with the provider’s terms and conditions, as the request was made during the afternoon, the price would be the second day’s close of business price.

Miss R chased up her complaint on 20 March. She was advised that her switch was already being processed and could not now be fast-tracked. Miss R complained that she had not been notified of this sooner. The switch was made based on the fund valuation at noon on 20 March 2020. Miss R complained that the delay in processing the switch had caused her financial loss of just over £15,500.

The ombudsman dismissed Miss R’s complaint.  He concluded that the lack of acknowledgement email on 17 March should have prompted Miss R to check whether the provider had received her switch request, particularly if it was time critical. As there was no evidence that the provider received the initial request, the provider was not at fault for failing to action it. When the fund switch was made, the appropriate fund value for a request made in the afternoon of 18 March was applied.

The PO acknowledged that it would have been frustrating for Miss R to be advised that her request could have been prioritised only after the process was underway and it was too late. However, this would only have meant the switch was completed more quickly and would not have made any difference to the fund value applied.

Although Miss R referred to other errors she had encountered when interacting with the provider, arguing that this was not an isolated incident, the PO was not willing to take other matters into account. He confirmed that his investigation was limited to the specific issue Miss R raised in her application to him.

Clarification of ‘maladministration’ requirement for successful complaint

Mr Y complained that his provider had transferred a shareholding held in his self-invested personal pension (SIPP) into the plan, even though he did not expressly authorise this when making a transfer request.

The adjudicator in this case provided some brief, but useful observations about what constitutes maladministration, reminding us that a finding of maladministration is required for a complaint to be upheld by the ombudsman.

Mr Y was a member of the provider’s plan and considered transferring his entitlement under a SIPP, which included shareholdings and cash, into the plan. From the initial emails exchanged between Mr Y and the provider, it appeared that Mr Y intended to sell the shareholding. After Mr Y submitted a transfer request in November 2018, the provider requested the transfer of the entire SIPP fund, including the shareholding element.

Mr Y contacted the provider after he was notified that his shareholding had been sold. The provider confirmed that it only accepted cash transfers and was not made aware of the shareholding either by Mr Y or the SIPP’s administrator. Mr Y argued that the sale of the shareholding caused him financial loss. The provider contended that it had simply followed the instructions on the transfer request form and a partial transfer should have been requested if Mr Y did not want to sell the shareholding.

The PO did not uphold Mr Y’s complaint. He decided that it was entirely reasonable for the SIPP fund to be disinvested and a full transfer to take place, as this was what the transfer form had instructed the provider to do. It would have been reasonable to expect the shareholding to be included in the transfer unless stated otherwise. He considered that the provider had paid due care and consideration to Mr Y’s request, noting that Mr Y’s instructions did not include a request for a partial transfer nor a request not to sell the shareholding.

A PO adjudicator, considering Mr Y’s complaint at an earlier stage, found no maladministration by the provider, so precluding a successful complaint. The adjudicator noted that breaches of overriding statutory guidance or internal policy or procedure would constitute maladministration, whilst “an expressed preference for further checks to have been made, or more time taken”, would not. In the absence of a financial adviser, it was for Mr Y to manage the transfer process and the provider was acting as an administrator on an execution only basis, following Mr Y’s instructions rather than querying them.

Members and providers need to pay careful attention to transfer request forms and members should ensure that the desired outcome is communicated clearly to avoid disputes.

Online access to pension policies

The PO dismissed a complaint by a Ms N who, after her SIPP was transferred to another provider, complained that she no longer had online access to the policy. She wanted the provider to pay for a financial adviser to help her find a comparable policy with online access, and to pay any costs incurred in transferring the policy.

The ombudsman took the view that online access to policies is not usually a right for members, although his decision also highlights the importance of retaining policy documents. The ombudsman rejected Ms N’s claim that as the provider was unable to provide a copy of the policy terms and conditions, it could not prove that online access was not a key aspect of this policy. He found that online access is not usually guaranteed within policy terms and conditions and as such it was up to Ms N to provide evidence that her policy differed and there was such a guarantee in her case. 

Ms N’s SIPP was transferred to the provider when it merged with another business in 2017. At this time, the provider wrote to Ms N explaining the proposed transfer and setting out that her policy and the way members contacted the provider would not change, and documentation was available online or could be posted upon request. When Ms N contacted the provider in 2020, she was informed that it was not currently practical to deliver online access for her product. Although the provider offered alternative pension products with online access, the charges, fund range, features and benefits were different to her existing arrangement.

The provider acknowledged that it should have communicated about the lack of online access to Ms N’s policy earlier, and offered to pay £100 for the distress and inconvenience caused. It also advised that online access was an additional service that was not part of the terms and conditions of her policy. The provider was unable to provide Ms N with a terms and conditions booklet as the product was closed to new business.

Ms N disputed that online access was an optional function. She asked to be sent a full comparison of her policy with the provider’s other products that had online access. Ms N asked the provider to cover the cost of any financial advice she required The provider advised her that it could not provide comparison data as this would constitute financial advice, and Ms N would need to fund the costs of transferring to an alternative plan.

The ombudsman did not uphold Ms N’s complaint. There was no evidence that online access was an integral part of the original pre-merger policy – online access had only been provided as a method of accessing information. The provider’s inability to provide online access for this product did not constitute maladministration; there was no reason to think the provider did not want to provide online access if this was possible, in line with its digital strategy. The provider did not have an obligation to provide online access unless specifically stated as a feature of a particular policy. Although the provider recommended that Ms N sought independent financial advice, this did not place an obligation on the provider to fund the advice.

While the ombudsman agreed that the provider’s communications could have been clearer, the matter had not caused significant distress and inconvenience and the £100 offered by the provider was adequate in the circumstances.

We are processing your request. \n Thank you for your patience. An error occurred. This could be due to inactivity on the page - please try again.