Failure to flag lifetime allowance costs adviser

Failure to flag lifetime allowance costs adviser

A financial advice firm has been told to compensate a client who was not advised to protect his pension benefits before the lifetime allowance was reduced.

In early 2006 Ormiston (1956) Limited advised a client, referred to as Mr M, to transfer his existing pension pots into a self-invested personal pension and make contributions from his salary. 

Over the following years Mr M made further payments into his Sipp and in late 2006 the adviser said it was "a very sensible approach to top up existing pension funds with further contributions if they attract tax relief at this highest marginal rate".

Mr M had several meetings with his adviser between 2006 and 2014 but there was nothing to show they considered any action to protect pension benefits from the decreasing lifetime allowance. 

The Financial Ombudsman Service ruled Ormiston had failed to monitor the value of Mr M’s pensions so he had missed the opportunity to take fixed or enhanced protection. 

As a result, Mr M will have to pay a significant tax charge when he takes the benefits from his Sipp so the ombudsman ruled the intermediary should pay him £200 for the worry this matter has caused. 

Ormiston was also told to pay the tax change Mr M will incur on the money in his Sipp. 

At the time the advice was given Mr M was in receipt of an occupational pension of around £54,000 per year. 

As Mr M’s occupational pension was significant, Ormiston wrote to him about his pension arrangements “with a view to ensuring that there were not any issues at A Day.”

The letter, dated March 2006, said: “In order to value these benefits against the lifetime allowance at A-Day, I multiply the pension in payment by 25 and add the fund value. This gives a total of £1.4m approximately which is well below the £1.5m lifetime allowance at A-day. 

“Unless there is a fantastic amount of investment growth, I do not feel that any form of protection is required. 

“In any event, primary protection is only available if the fund at A-Day is over £1.5m and enhanced protection would not allow for future contributions. 

“I believe that you might be considering future contributions and it would be a simple matter of monitoring your fund value in order to keep below the lifetime allowance.”

In 2015 Mr M contacted the business to say he was concerned that he may have exceeded the lifetime allowance. 

But Ormiston said it didn’t think it was responsible for Mr M not having protected his pension before the lifetime allowance was reduced. 

Ormiston said Mr M should have sought advice from his accountant on “issues such as the lifetime allowance and how it pertained to you” and details of the changes were contained in the quarterly newsletter sent out by the business.