An ombudsman has ordered a financial advice firm to refund up to £150,000 to a client who was wrongly advised to transfer his defined benefit pension scheme.
The ruling found Positive Solutions wrongly advised a client to transfer his pension benefits to a self-invested personal pension (Sipp) in 2013, with a transfer value of around £165,000.
Self-employed and in his late-50s at the time, the client was advised the new plan would need to grow at 4.2 per cent a year to match the value of the benefits being given up, but this would be well within the safely recommended level for a person with his understanding of investment risk.
Positive Solutions also advised the transfer would provide more flexibility and improved death benefits for the client but he was doubtful whether a suitability report was provided at the time of the transfer instead receiving one in 2015.
But Keith Taylor, an ombudsman at the Financial Ombudsman Service, found the suitable advice at the time would have been to remain in the occupational pension scheme which provided virtually guaranteed benefits and upheld a complaint against the firm.
In his report, Mr Taylor said: "The client had been assessed as having a balanced attitude to risk. The accrued pension benefits were a large part of his retirement provision and I think that transferring those benefits represented a significant risk.
"The critical yield to match the benefits given up was 4.2 per cent - this was below the Financial Conduct Authority mid-growth rate at the time but a return higher than 4.2 per cent would be needed to actually improve the benefits."
Mr Taylor said he was not satisfied the client had the capacity to take on that risk with such a substantial part of his pension and therefore that the transfer could not reasonably be justified on the grounds of providing increased flexibility, earlier tax free cash or greater death benefits.
In response to the initial adjudicator’s recommendation the client’s complaint should be upheld, Positive Solutions argued undue emphasis had been placed on the client’s objective of "security of my pension fund", which it did not believe was the objective at the time of advice.
The firm also argued the original suitability report detailed numerous financial incentives, including flexibility on retirement and paying "significantly" more tax free cash.
Mr Taylor recommended that if the amount reached by the calculation of fair compensation exceeds £150,000, Positive Solutions must still pay the balance.
He also required Positive Solutions to pay the claimant an additional £300 for the distress and upset caused by the unsuitable advice.
rachel.addison@ft.com
