Mortgages  

St James’s Place under fire for pensions advice

St James’s Place under fire for pensions advice

St James’s Place Wealth Management has been told to cough up compensation for pension mortgage advice given back in 1994.

Despite the firm calculating its recommendation resulted in pension mortgage costs that were significantly less than repayments costs would have been, the Financial Ombudsman Service ruled the client’s complaint “indicates that he didn’t understand how the pension was intended to repay his mortgage”.

Reviewing the case, ombudsman Roy Milne said he had not seen any evidence to support the complaint that Mr D was told that the life cover wouldn’t cost him anything.

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He stated St James’s Place should have told Mr D how much he was paying for life cover on an ongoing basis, but added the offer of compensation from SJP had allowed for the costs incurred.

While Mr D was not happy with how his pension funds performed, the investments chosen “appear to have been suitable” according to the decision notice.

Mr Milne also pointed out the plan wasn’t guaranteed to provide a tax-free cash sum of £52,500.

“I think there are some issues about whether the advice was suitable for Mr D. He’s complained about the cost of life cover and the performance of the pension fund. In my view, that indicates that he didn’t understand how the pension was intended to repay his mortgage.

“I think it is right that he is compensated for that advice,” stated Mr Milne.

“If Mr D hadn’t been advised to use a pension to repay his mortgage I think it’s reasonable to assume that he would have had a repayment mortgage. The comparison to be made has to look at the difference in the capital that would have been repaid and the difference in costs.

“St James’s Place has agreed to ignore the savings Mr D made,” read the notice, adding those savings were for more than the cost of the life cover he had paid.

In 1994 Mr D, then aged 24, had just passed his professional exams, was single with no dependants and earned around £20,000 annually.

He hadn’t made any provision for retirement income, so SJP advised him to start a pension plan and use this to repay his first mortgage.

The fund choice for the plan was 50 per cent in St James’s Place Managed, 10 per cent in M&G Managed, 10 per cent in North American Equity, 10 per cent in Far East Equity and 20 per cent in Greater European.

The mortgage amount was £52,500 and alongside the pension mortgage SJP arranged for life cover.

The initial monthly payment was £40, increasing each year by 10 per cent until the age of 55.

Mr D told Fos the free life insurance was the most interesting part of the proposal, adding “I felt reassured”.

In 2010, Mr D asked SJP to stop the indexation on the life insurance and reduce the monthly payments to £100, net of income tax.