Personal Pension  

Scottish Life RDR top-up policy in focus after new ruling

The pensions ombudsman has upheld a complaint against Scottish Life for its inability to facilitate payments to its personal pension plan in the post-Retail Distribution Review world, in seeming contradiction of a Financial Ombudsman Service decision on a similar case.

Ronnie Hardie complained to the pensions ombudsman that Scottish Life closed off the option to make increased contributions or to transfer in payments to his pension plan from 31 December 2013.

Tony King, pensions ombudsman, ruled this condition as “not valid”, and therefore upheld the complaint.

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However, in a similar case that went to the Fos earlier this year, the ombudsman did not uphold the complaint against Scottish Life.

Julian Pruggmayer, IFA of West-Midlands based Financial Risk Management, told FTAdviser he has received 10 complaints from employees within a company who wish to increase their monthly pension contributions and he submitted one as a ‘test case’ to the Fos.

In both separate cases, Scottish Life said, as a result of the Retail Distribution Review, it has become “impractical” for many of its legacy contracts to continue. It stated that to meet the requirements of the RDR, it would take significant investment that would not be financially viable.

The firm also cited a clause in its terms and conditions that allows Scottish Life to alter the product should it become “impractical or impossible” to continue with the current term and conditions.

However, the pensions ombudsman did not agree with this, in a recently publicised decision.

Mr Hardie received a letter from Scottish Life in November 2012, stating that while it will accept regular contributions, it can no longer accept top-ups.

Mr Hardie argued that he has lost the opportunity to increase his pension pot. He said he had intended to increase his contributions in the coming year and possibly transfer in another pension that he holds.

In July, the pensions ombudsman office telephoned Scottish Life for clarification on whether or not the policy had been amended or whether a condition had been imposed. Scottish Life confirmed that a condition had been imposed once the member had been informed.

Mr King wrote that while at first glance it looks like the policy had been amended to reflect the change, it is not clear if that was the case.

Mr King concluded that under a rule in Scottish Life’s terms and conditions, the member has a right to make additional payments and while this may restrict the amount/terms/timings etc of a payment, it cannot take away the right altogether.

Mr King said: “On balance, the evidence points to this being a condition being imposed rather than a change to the policy. I do not consider it to be valid.

“My direction below is for the plan to be in effect reopened. It is open to Scottish Life to impose conditions and it may be that Mr Hardie would be better advised to take up the alternative of making contributions to a new policy.”

A spokesperson for Scottish Life said: “The ombudsman does not dispute our right to stop accepting increments into this particular contract but is of the view that, technically we should have communicated the basis of that change to the policyholder in a different way. We have now written to the policyholder effecting the change in the terms which the ombudsman considers appropriate.”