Portal Financial Services was wrong to transfer the pension of an illiterate insistent client, the Financial Ombudsman Service has ruled, as it cannot be assumed signed statement were fully understood.
The client, referred to as Mrs W, complained Portal assured her she could take the tax-free cash lump sums from her pension without having to make transfers, and was dismayed when she later discovered her pensions had in fact been transferred.
The Fos decision notice pointed out Mrs W cannot read or write and was heavily reliant on verbal advice from Portal, meaning any signed written statements cannot be taken as having been fully understood, according to ombudsman Adrian Hudson.
An upheld complaint on the case in June last year revealed Portal had established Mrs W - an active member of her employer’s final salary pension scheme - would be worse off in retirement if she transferred from this scheme.
During a telephone conversation with Mrs W on 13 September 2012, Portal noted Mrs W wanted to take the tax-free cash lump sums to pay for home improvements, including adding solar panels to her house.
Then aged 56, she did not wish to raise finance for those improvements, and would have to opt out of her employer’s pension scheme to access her retirement cash.
During the conversation she was aware the remaining pension would be unlikely to grow sufficiently to match the benefits she could receive from her employer’s pension scheme - but Mrs W suffered from arthritis, osteoarthritis, rheumatoid arthritis and fibromyalgia, so felt she would not live beyond normal retirement age.
Portal wrote to her on 14 September 2012 recommendeding she did not transfer from her employer’s pension scheme, adding if she wished to proceed, it would treat her as an insistent client. It provided an insistent customer form, which Mrs W signed.
Between 18 and 21 September, Portal spoke with Mrs W again, recording she was confused by the letter, still wished to take the tax-free lump sums and her manager had helped complete the forms.
Portal sent her a suitability report, setting out its recommendation she purchase a fixed term annuity, adding that Mrs W was in good health.
Before the transfer from her employer’s pension scheme could take place, Mrs W had to opt out of that scheme. Portal expected Mrs W to re-join the scheme once the transfer had taken place.
The transfer was completed in February 2013, with a tax-free lump sum of £8,334 received and the remainder of the transfer value placed into fixed term annuity in March 2013 - which did not pay any income but had a guaranteed maturity value.
Mrs W told the adjudicator she had wanted the lump sums from her pension funds to help pay for her daughter’s wedding, but because of the extra time taken, she ended up borrowing from her bank. She said that she did not spend the lump sums received on home improvements, “but wasted them”.
Mrs W was retired on ill health grounds in March 2014, before she had re-joined her employer’s pension scheme. A report produced by an occupational health physician in July 2014 said she had no reasonable prospect of gainful employment.
Mrs W said it was only after she had been retired that she discovered her pension had been transferred.
The original adjudicator noted that transferring did release more by way of a lump sum than might have been received at normal retirement age from her employer’s pension scheme, but added that Portal did not give any quantified indication of the impact on Mrs W’s income in retirement if she transferred.
The adjudicator also took the view that Mrs W’s state of health as recorded by Portal in September 2012 was not so poor that she was unlikely to require an income in retirement.
Portal knew that Mrs W could not read or write, so the adjudicator stated this placed greater onus on the firm to make sure that she fully understood the implications of transferring. He was not satisfied that it should have arranged the transfer from the employer’s pension, even on an insistent client basis.
Portal did not agree, stating it had afforded Mr W an increased degree of care and diligence. The firm said it would not have been right to discriminate against Mrs W by refusing to handle the transfers because of her learning difficulties, adding that it did not believe she would have signed the various forms if she did not want to transfer, or if she did not understand what was to happen.
Mr Hudson still upheld the complaint, directing Portal to carry out loss calculation using the methodology for the pension review, but using the latest assumptions published for cases that fall outside the review. If there is a loss, Portal should pay redress in line with the guidance.
“If the redress due cannot be paid into a pension plan, then it should be paid to Mrs W as a lump sum, after deducting 15 per cent. This deduction is to allow for the act that 25 per cent of the compensation would be tax free and the remaining 75 per cent would be taxed at a rate of 20 per cent.”
Portal was also ordered to pay Mrs W £250 in respect of the trouble and upset she will have suffered because it arranged the transfer.
