This is month, I look at a determination by the Pensions Ombudsman dismissing a complaint against the administrators of a personal pension scheme because a delay in purchasing an annuity for a member (which resulted in adverse tax consequences) was deemed to be a result of the member’s own inaction.
Mr Finn was a member of the Virgin Money Stakeholder Pension Plan. On 14 January 2009, Virgin Money wrote to Mr Finn stating that he would need to take his benefits before turning 75 on 17 May 2009, as, if he did not, he would be unable to take a 25 per cent tax-free cash lump sum and his fund would consequently become an alternatively secured pension.
Virgin informed Mr Finn that as it did not offer annuities, he would need to buy one from another provider in the open market. In the event that he did not purchase an annuity in time, Virgin stated that as it did not offer ASPs, his fund would first have to be transferred to a provider nominated by him – or otherwise Virgin reserved the right to choose one on his behalf – under the key features and terms and conditions of the Virgin Scheme rules. The rules also gave Virgin discretion to pay an unauthorised payment and deduct any scheme sanction charge if one of its members did not take their benefits in time.
On 30 January 2009, Virgin wrote to the Mortgage Advice Centre, Mr Finn’s advisers, enclosing the necessary forms to transfer his benefits to an annuity provider. Having failed to receive a response, Virgin sent numerous chasing letters to Mr Finn and MAC, reiterating the consequences of inaction in this matter.
Having contacted Canada Life regarding an annuity illustration, MAC told Virgin on 7 May 2009 that Mr Finn would be purchasing a Canada Life annuity. MAC posted the documents to Canada Life on 12 May 2009 and asked it to liaise directly with Virgin. Virgin informed Canada Life that its deadline for receiving the forms was 13 May 2009. Canada Life did not receive the completed forms until 15 May 2009, and enquired as to whether Virgin would accept faxed copies, rather than the original signatures. This was refused by Virgin.
Consequently, Canada Life informed Virgin on 19 May 2009 that the transfer could no longer go ahead as Mr Finn was over 75. Mr Finn’s fund of £49,169.44 became subject to a 55 per cent unauthorised payment charge and a 40 per cent scheme sanction charge, which meant that he was sent a cheque from Virgin for only £14,759.83.
Mr Finn complained that the delay was caused by Virgin and Canada Life. He also complained that Virgin had not transferred his benefits to an ASP under the rules, and had instead made an unauthorised payment to him, incurring tax charges in the process.
In response, Virgin stated that the delay was neither its responsibility, nor that of Canada Life, as it had received constant reassurances from MAC that the forms would be returned in time. Regarding the provision of an ASP, this was an option to be used at its discretion, rather than a default position, and in any event it only applied where a member had provided no instructions as to the treatment of the fund, which was not the case here.
The Ombudsman dismissed the complaint. Although neither Virgin nor Canada Life had specifically explained to Mr Finn how long the transfer process would take, it should have been obvious to both Mr Finn and MAC that the process would take time. In reality the deadline was not Mr Finn’s 75th birthday, but a week or so prior to that to allow sufficient time for the process to be completed.
Virgin had repeatedly made clear the financial consequences of not transferring his fund before age 75 well in advance of 17 May 2009, and that their discretion to make an unauthorised payment had been exercised reasonably. The Ombudsman also found that there had been no maladministration on the part of Canada Life, who could not pay Mr Finn the cash lump sum without Virgin’s and its own requirements having been met first.
The Ombudsman noted that MAC was not within its jurisdiction and therefore it could not make any formal finding as to any action or inaction on its part.
Monica Ma is a partner for City law firm Simmons & Simmons
Key points
- The analysis looks at a determination by the Pensions Ombudsman dismissing a complaint against the administrators of a personal pension scheme because a delay was deemed to be a result of the member’s own inaction.
- Virgin informed Mr Finn that as it did not offer annuities, he would need to buy one from another provider in the open market.
- Virgin had repeatedly made clear the financial consequences of not transferring his fund before age 75 well in advance of 17 May 2009.
