In 2012 the client met with a Fairstone adviser to discuss accessing tax-free cash from his pension funds, of which he had three with different providers.
The client was 56 years old at the time, on an annual salary of £36,000, and intended to retire age 65.
As documented at the time Fairstone advised the client against accessing his pensions, highlighting he should use them for income in retirement.
But in an undated and unsigned letter to the client, the adviser noted that despite his advice the client still wished to access a tax-free sum from his pension and therefore advised a fixed-term annuity was the most suitable way to achieve this.
The adviser listed the potential risks associated with a fixed-term annuity, including the higher associated charges, its permanent nature and the impact of changing annuity and interest rates.
The following month the fixed-term annuity was set up and the client took a lump sum from his pension funds.
At the end of the fixed-term annuity in 2017, the client complained to Fairstone that he had had no pressing need for tax-free cash at the time of the advice and he had now lost the guaranteed income of one of his pension plans owed to him when he turned 60 and his employer’s contributions towards his group personal pension.
The client also claimed he had never received Fairstone’s suitability letter as to the recommendations of a fixed-term annuity.
Upon escalation to the Fos, the ombudsman upheld the client’s claim.
The ombudsman ruled that whilst Fairstone had advised the client correctly with regards to not accessing his pension pre-retirement, the adviser should have process the transfer against its own advice.
Ombudsman Vicki Blackwood said: "There is no rule to prevent Fairstone’s adviser from transacting business against its advice if a client insists.
"But I don’t think Mr M could accurately be described as an insistent client and I don’t think he was made aware of the benefits he was giving up and, if he had been, I don’t think he would have transferred his pensions to access his tax-free cash.
"I cannot be sure, from the evidence available, that Mr M was insistent that he needed to access his tax-free cash, and that need was so pressing that it was worth giving up the guaranteed pension he would have had at 60.
"I don’t think giving up such a valuable benefit, whilst Mr M was still working and not intending to retire until he was 65, was a suitable recommendation."
Bringing into question the undated and unsigned suitability letter sent to the client before the transfer, the ombudsman ruled she was not satisfied Fairstone had taken all necessary steps to make the client aware what he might lose out on in buying the annuity.
She added: "I don’t think the client would have bought the fixed-term annuity if Fairstone had explained clearly why he should not have transferred his pensions in order to access his tax-free cash."
The ombudsman ordered Fairstone to compensate the client by comparing the value of his personal pensions had he remained invested until 2017 against the value of the actual maturity value of his fixed-term annuity plan.
If the client would have been better off remaining invested in his three personal pensions, Fairstone has been instructed to pay the difference.
Fairstone has also been ordered to pay the client £250 for the "trouble and upset" caused by the advice.
rachel.addison@ft.com
