The Financial Ombudsman Service’s (Fos) ruling against Chadney Bulgin over an annuity sale to a terminally ill client sparked predictably fierce reactions from sections of the adviser community.
To refresh your memories, a terminally ill person had a pension income of about £16,000 and a pension fund of £350,000 from which he had already taken his tax-free cash.
He and his wife owned their home. He had about £180,000 of cash savings and other assets of about £200,000.
He wanted to increase his income and the firm suggested flexible drawdown. To qualify, he needed to increase his secure pension income to £20,000 a year.
Chadney Bulgin recommended a joint life annuity, costing £76,000, to provide the extra £4,000 a year. His widow would receive two-thirds of the income.
In the event he took a single life annuity costing £40,000.
This a terminally ill man – not someone with 10 or more years active life ahead of him.
There were considerable delays setting it up and he died in January 2014 after receiving just three months’ payments.
So, how can any of you have any sympathy with this adviser?
What would have been wrong with suggesting he dip into his £180,000 cash savings while the course of his illness was monitored?
As the ombudsman said: “He had enough income and capital for his needs.”
He “did not need the added flexibility from flexible drawdown”, and therefore did not need the annuity to get his income up to £20,000.
Chadney Bulgin told the ombudsman that the adviser was a good friend of the client so was best placed to understand his needs and objectives. Yet this “good friend” also said they did not know the disease was terminal.
But the ombudsman said the enhanced annuity application clearly noted the advanced stage of the disease.
On the evidence available, this was bad advice, purely and simply.
Advisers leaping to the defence of Chadney Bulgin would do better to consider the reputation of their industry.
The adviser is not always right and the ombudsman is not always wrong.
The adviser is not always right and the ombudsman is not always wrong____________________________________________________________________________
No more pain for self-employed
Should the self-employed pay more National Insurance to force them to save towards retirement?
Steve Webb, the former pensions minister, thinks so.
Now let’s leave aside how unfair and administratively complex this would be to those who already contribute without being forced to.
I am more interested in the reasons behind the dramatic falls in the numbers of self-employed contributing – from 60 per cent in 1996/97 to 20 per cent by 2012/13.
Yes, there are more self-employed, the period coincided with the financial crash and the technology boom/bust which would have left some fingers badly burnt.
No doubt some have ridden the buy-to-let boom choosing to stake their retirement on property than on the stock market.
But we have seen regulatory changes that work against the self-employed – some of which Mr Webb oversaw.
The old carry forward and carry back were scrapped and a gradual reduction in the annual limit will have hurt those who wished to make occasional lump sum contributions.
The new £1m lifetime limit discriminates against those who have saved into a defined contribution pension rather than having the luxury of a final salary pension.
But since these numbers were published we have enjoyed new pension freedom. Perhaps the reluctance to save was bound up with fear and loathing of annuities.
It would be wise to see whether pensions now increase in popularity before placing further burdens on the self-employed.
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Equity release consequences
A few weeks ago a reader asked for help with a shared appreciation mortgage his parents had taken with Bank of Scotland.
I suspected the borrowers had gone into the deal with their eyes wide open and now the son was upset at the size of Bank of Scotland’s share and the effect it had on his family’s inheritance.
The consequences of these loans were clearly spelled out. Similar cases reaching Fos have not been upheld and I had to tell the reader this.
Equity release can be a ticklish area and, while innovation is needed, it must be carefully handled.
Key Retirement is concerned that a product it is trying to assemble called More2Life will fail the Equity Release Council’s ‘no negative equity’ test.
This test was put in place for a reason. While borrowers may be robust in their assertions at the time they take a loan – their relatives may be less understanding if they take over their parents’ finances later on.
Tread with care – these are deep and dangerous waters.
Tony Hazell writes for the Daily Mail’s Money Mail section. He can be contacted at t.hazell@gmail.com
