Adviser to pay out on 2008 pension advice

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Adviser to pay out on 2008 pension advice

Sesame has been told to compensate a pair of clients over unsuitable advice despite the ombudsman finding the couples’ woes could not be blamed on the adviser.

Two clients of Candour Independent Financial Advisers, an appointed representative of Sesame at the time, complained to the Financial Ombudsman Service that unsuitable advice to switch their pension had left them out of pocket and unable to pay their mortgage.

The clients, who the Fos called Mr and Mrs S, both held with-profits pension policies that included guaranteed annuity rates but in 2008 Sesame, through its appointed representative, recommended them to switch to a different policy with another provider.

The pension values, of which Mr S had £23,866 and Mrs S had £2,737, were then invested into a mixture of different funds with a higher degree of risk but which had performed better than their old policies in the previous few years.

At the time of the advice in 2008, Mr S was 59 years old, self-employed and earned £1,500 per month. He also had a small occupational pension. Mrs S was 56 years old and unemployed. The couple had no dependants.

In 2012 the couple met with the adviser again and Mr S decided to take his benefits after he was informed he did not have to wait until age 65 to access his pension as he had previously thought.

Both Mr and Mrs S were unemployed at that point. Their income included pension credit, a small occupational pension for Mr S, state pension benefits and a small industrial injury payment for Mrs S. 

Mr S received a tax free cash lump sum and with the rest of the pension fund he bought an annuity, paid monthly in advance, without escalation, with a 10-year guarantee and a 50 per cent spouse’s pension. 

Mrs S had cashed in her policy earlier that year and received £2,800.

Then in 2015, when they contacted the pension provider to inquire about Mr S’s policy, they were told the policy had ended in 2012 when Mr S had taken a tax-free cash sum and bought an annuity.

The couple said the advice they received from Sesame wasn’t in their best interest as they lost valuable guarantees when they switched their pensions in 2008 and were led to believe in 2012 that they would still have a pension pot to cover their outstanding mortgage balance. 

They also argued the adviser should have told them that taking an annuity would impact on their benefit payments.

The ombudsman heard how the couple didn’t have the funds to cover their remaining mortgage balance when the mortgage ended and in 2018 the bank started repossession proceedings.

The couple said the adviser had known about their circumstances and that their mortgage would have been a priority. 

They received limited advice on their pension in 2008 and 2012 but said they needed unrestricted financial advice making sure their mortgage was covered. 

They claimed they did not need another small annuity income in 2012, but would have needed a pot of money to pay off the mortgage when the term ended.

Sesame agreed that the advice to switch policies was not suitable in their circumstances and agreed to calculate any losses the couple suffered but didn’t take into account the guaranteed annuity rates.

Ombudsman Nina Walter agreed that the advice was not suitable but said she had to decide what was likely to happen in the following years to put them in the position they would have been in if the advice had not occurred.

Ms Walter found it unlikely that Mr S would have tried to access his pension early if the idea hadn’t been introduced by the adviser. 

And even if he had, she believed once the guaranteed annuity rates had been properly explained to him, he would have waited another year until he turned 65 to take advantage of his valuable guarantees.

She also believed that Mr S would have taken his pension benefits at age 65 in the form of a 25 per cent tax-free lump sum and a single life annuity with an applied guaranteed annuity rate.

However, she didn’t believe that Sesame, through its pension advice, was responsible for the predicament Mr and Mrs S found themselves in when they came to repaying their mortgage.

Ms Walter said: “Based on the documents provided I haven’t seen anything to suggest that the pensions were presented as a repayment vehicle for the mortgage.

"And I don’t see how Mr and Mrs S’s pension would have realistically paid off their mortgage balance in any event.”

She added: “Mr and Mrs S say they were given the impression that there was still a pot of money to pay off their mortgage after Mr S accessed his benefits in 2012. However, I can’t see any evidence that this was the case.”

Therefore she ordered Sesame to put Mr S into the position he would have been in if Sesame hadn’t advised him to switch his pension in 2008.

It must also pay both Mr and Mrs S £250 for the inconvenience caused.

amy.austin@ft.com

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