The Financial Ombudsman Service has upheld a complaint that a client was given “fundamentally bad advice” to transfer out of a company pension nearly 30 years ago.
In 1989, financial advice firm The Analysts recommended that a client, referred to as Mr F, should transfer his preserved pension benefits in the Mars Pension Plan into a section 32 plan.
The FOS said that the adviser’s wording around guarantees in the documentation “suggested a level of certainty which was misleading” and that the client “couldn’t have reasonably understood the extent to which he’d be exposed to risk with the section 32 plan because he wasn’t fairly informed about the lower as well as the upper projected growths.”
In his cover letter at the time, the adviser wrote: “What is actually paid will depend upon the future investment performance … but I believe that you can expect them to perform well”.
In citing a total pension, the adviser said it “will” amount to a certain value.
The adviser challenged this finding, arguing that he client had confirmed he had read a Norwich Union Illustration that had both higher and lower bounds listed. They also said that the adjudicator has underplayed the risks there were of staying in Mars’ scheme, and that problems could have been “cleared up” if the client had approached the adviser promptly.
In a provisional decision, a FOS adjudicator calculated that because of a drop in inflation since he left Mars, the client’s pension had been reduced by almost £5,000 a year.
After an actuary’s assessment and discussions with the scheme administrator, FOS calculated a total loss of around £300,000.
The Analysts challenged the ruling. In a final decision, the ombudsman accepts that while risk warnings were given, the client was misled about the risks involved.
The ombudsman has ordered The Analysts to pay £100,000 in redress, to be paid within 28 days, or the amount will increase at 8 per cent a year.
He also recommends the firm pay the balance of what is left of the pension losses, but this is not binding.