Despite the firm calculating that its recommendation had resulted in pension mortgage costs that were significantly less than repayments costs would have been, the Financial Ombudsman Service (Fos) 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 from Mr D that he was told that the life cover wouldn’t cost him anything.
He stated that St James’s Place should have told Mr D how much he was paying for life cover on an ongoing basis, but added that 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 that the plan wasn’t guaranteed to provide a tax-free cash sum of £52,500.
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.
SJP wrote to Mr D in October 2010 saying the payments had now reduced as requested, the waiver benefit had therefore also reduced, the life cover remained at £199,368 and the indexation had stopped.
Mr D ceased payments to the life plan in August 2014.
In a letter to St James’s Place sent in June 2015, Mr D said he had maintained the interest-only mortgage for 20 years.
His initial complaint to SJP was about the costs of the life cover, saying it had exceeded market prices yet he thought there had been no cost to him when he started the plan.
At this stage, a spokesman for SJP insisted it had explained how the life cover costs worked, but admitted it could not be sure that the pension mortgage advice was right for Mr D.
SJP offered compensation for its 1994 advice, with the spokesman noting if the plan was re-worked to show no life cover, then the transfer value would be higher and this would affect the offer of compensation.
Mr D didn’t accept the offer and complained to the ombudsman.
SJP was told by Fos to work out how much capital would have been repaid as at August 2014, assuming a repayment loan of £52,500 was payable over 25 years.
The firm then found Mr D’s pension mortgage costs were significantly less than the repayment costs would have been, but it said they would ignore this gain when calculating compensation.
SJP worked out the capital loss and said it would pay Mr D a further sum of £500 for any distress and inconvenience caused by the wrong advice.
The client then argued that SJP failed to ensure that the plan’s funds would deliver the loan amount of £52,500, which he said “was a condition of the contract”.
Mr D then explained how he wanted the offer to be worked out, which would result in a payment to him of £92,400.
SJP has been told to re-calculate the offer, given the lapse of time, including £500 for the distress and inconvenience caused.
