Fidelity has come under fire for providing drawdown documentation that failed to explain the process to its clients and advisers.
The provider lost a case with the Financial Ombudsman Service (Fos), where it was claimed their key features and terms and conditions documents were misleading and did not describe the process sufficiently in order for it to be clear to the client what would happen.
A woman, dubbed Mrs H by the Fos, complained that when she took a payment of tax-free cash and income from her Financial Administration Services drawdown pension the money was not drawn solely from the cash account, as she had expected, but was taken from across all her invested funds, including the cash account.
Mrs H had transferred four pensions, valued at about £270,000, into a Fidelity drawdown plan in March 2016 and requested a payment of tax-free cash and income totalling £13,333.33.
The pension cash account held more than £80,000 for the purpose of providing funds for income and tax-free cash payments over the next three years.
However, while the tax-free cash was taken entirely from the cash account the income payment was drawn proportionately from across all of the invested funds including the cash account.
Mrs H's financial adviser had pointed out that the key features document stated drawdown payments would be paid out of the Sipp cash account unless there was not enough money in it, in which case they would be taken from the holdings for lump-sum payments or largest fund for income payments.
But Fidelity argued that paragraph was taken out of context and that an earlier paragraph in the key features had stated: "When you take pension drawdown from your FundsNetwork pension account for the first time, a new account (pension drawdown account) will be created in order to separate the part(s) of your pension that are in drawdown from any part that is not yet used to provide drawdown."
Fidelity said this meant the paragraph the adviser had referred to applied to the drawdown account and not the uncrystallised pension account.
The ombudsman stated this position should have been set out more clearly.
The ombudsman also pointed to a letter from Fidelity to Mrs H's adviser, in which the firm conceded the process used for a benefit crystallisation event (BCE) to move into drawdown was not provided in detail in the terms and conditions, or key features document.
The ombudsman stated: "I don't believe the documents describe as accurately as they could exactly how Fidelity's process works or explain that it does not allow the funds required for payment all to be drawn from the uncrystallised cash account.
"Therefore, I appreciate how Mrs H and her adviser may have misunderstood Fidelity's process.
"It is not for me to tell Fidelity how it should compile its key features and terms and conditions documents.
"However, I consider that drawing payments from a pension drawdown arrangement is one of the central purposes of the plan.
"Therefore, I think it is reasonable to expect that the process should be clearly described in the plan documents."
The ombudsman ordered Fidelity's Financial Administration Services Limited to pay Mrs H £100 for the inconvenience and the disruption caused to her retirement planning.
carmen.reichman@ft.com
