Sesame has been ordered to pay a widow almost £21,000 after admitting it provided unsuitable advice to a client prior to a major operation.
The firm reached the deal after the death of its client, when his widow referred the case to the Financial Ombudsman Service.
Sesame advised its client, Mr K, to buy a lifetime annuity before undergoing surgery.
However, Mr K died three months later, leaving his widow complaining that the firm should have waited until after the operation before giving advice on his savings of £64,178.
Sesame agreed the advice was unsuitable, and offered Mrs K a lump sum of £11,516.81 based on its calculation of the total income likely to be received by the widow from the annuity in her lifetime.
However, when Mrs K rejected the settlement, the FOS agreed in a provisional decision that the offer “was neither fair nor reasonable”.
The watchdog instead suggested that Sesame pay the lump sum Mrs K would have received, less the annuity already paid out, and recommended the two parties come to an agreement through which she pay the firm the income already received.
However, because the annuity cannot be cancelled, and the provider is not allowed to direct payments to third parties, Sesame instead offered £2,700 for inconvenience and an increased lump sum of £18,288.60, while Mrs K would additionally keep her annuity.
While the FOS found the offer fair, Mrs K again rejected the offer, stating that she would only receive £269.49 per month for the guaranteed 10-year period of the annuity.
Including the lump sum offers, this would equate to a total £13,000 below Mr K’s savings of £64,178.
The widow additionally claimed that her family history reflected a life expectancy below 62, and that aged 58, it was unlikely she would continue to receive any further annuity beyond the product’s 10-year guarantee period.
However, ombudsman Terry Connor upheld Sesame’s offer, meaning firm must pay Mrs K £20,988.60.
He said: “I appreciate that Mrs K is unhappy with the fact that my original proposal for the full payment of the lump sum has now been changed. But my decision has to not only be fair and reasonable, but to also adhere to current legislation.
“It is not possible to cancel the annuity. This is due to current HMRC and pensions legislation. Therefore the annuity must remain in force, which means that any future income paid to Mrs K must be taken into consideration.
“If I was to award the payment of the full lump sum Mrs K would have obtained more money than she is entitled to: the full lump sum and the future annuity payments. It is not possible for annuity payments to be redirected to Sesame because pension’s legislation dictates that the annuity provider must pay them to Mrs K.
“It is therefore important that a solution to the problem is reached, which is fair, reasonable, adheres to current legislation and is practical to implement.”