The Pensions Ombudsman has told AJ Bell to pay a client £500 for not processing the correct tax relief on a contribution into a self-invested personal pension.
On 21 March 2016, Mr E deposited £50,000 with AJ Bell through an electronic transfer and his IFA made an online instruction for that money to be processed as a personal contribution.
On 22 March 2016, AJ Bell credited the £50,000 contribution to Mr E’s Sipp which was invested by a third party discretionary fund manager later the same day.
However, AJ Bell applied the £50,000 as an employer’s contribution instead of processing this as a personal contribution.
Subsequently tax relief at source at Mr E’s marginal rate of 20 per cent was not correctly added to the Sipp.
If the contribution was processed correctly, the rebate would have been expected to be credited to the Sipp by HM Revenue & Customs on 25 May 2016.
On 24 January 2017, the IFA saw the contribution had been processed incorrectly and contacted AJ Bell to find out why.
AJ Bell initially concluded there had been no error but then accepted that, due to a technical error, the contribution had been applied as a gross employer contribution.
Mr E complained he had been deprived of investment growth on the additional £12,500 relief at source, which should have been added to the Sipp.
On 13 February 2017, AJ Bell credited £12,500 to Mr E’s Sipp, from its own account, to reflect the rebate that should have been added to the Sipp in May 2016.
AJ Bell accepted it did not process the contribution correctly and that Mr E had suffered an investment loss.
However, as Mr E’s Sipp was managed on a discretionary basis, AJ Bell said: “It is not possible to confirm exactly how the additional funds would have been invested had there been no delay reclaiming the tax relief.”
Consequently, AJ Bell considered that calculating Mr E’s loss based on an interest rate of 2.5 per cent was appropriate.
It then calculated that between 25 May 2016, when the rebate should have been credited to the Sipp, and 13 February 2017, when the Sipp balance was adjusted; the additional £12,500 would have yielded £226.03 based on an interest rate of 2.5 per cent.
As a gesture of goodwill, AJ Bell increased its offer to Mr E, to £300 but Mr E rejected this.
He said his portfolio managed by the DFM, had increased by 16.22 per cent and he considered his loss to be £2,027.50.
An adjudicator who looked at the complaint sided with Mr E and argued that AJ Bell needed to do more to put matters right.
He said AJ Bell missed numerous opportunities to provide adequate compensation to Mr E and initially denied it caused the relief at source error.
The adjudicator said it was only the tenacity of Mr E’s adviser that forced AJ Bell to accept a mistake was made.
He considered an award of £500 for non-financial injustice was warranted for the distress caused to Mr E.
AJ Bell did not accept the adjudicator’s opinion and so the case was then referred to ombudsman Anthony Arter who upheld the complaint.
He says within 21 days of the date of the determination, AJ Bell should establish what the additional £12,500 would have yielded in terms of investment returns, as at 13 February 2017.
After this AJ Bell should pay the net additional investment return into Mr E’s Sipp, provide a copy of its calculation to Mr E and £500 for the distress caused.
A spokesman for AJ Bell says: “We accept an error was made and have apologised to the client. There was some debate over the method of compensation but we will now respect The Pensions Ombudsman’s decision and rectify the situation as soon as possible.”