Firm ordered to pay client’s tax charge after pension error

Firm ordered to pay client’s tax charge after pension error

Equiniti Financial Services has been ordered to cover any potential tax charges that may arise as a result of it mistakenly transferring a client's pension into an investment account outside of a pension wrapper.

The client, who the Financial Ombudsman Service called Mr H, complained after the transfer from a stakeholder pension, facilitated by Equiniti, threatened to land him with a significant tax charge.

According to the Financial Ombudsman Service, Mr H had attempted to transfer the funds he had held in a stakeholder pension with another provider into a self-invested personal pension account with Equiniti in 2016, as he wanted more control over his investments.

The funds were transferred but placed into a share dealing account which was outside of any pension wrapper.

This could be considered as an unauthorised payment from the pension therefore could be liable to hefty tax charges.

Mr H also complained the funds were tied up so he could not invest as he wished and hence lost out on any investment growth on top of it.

In June 2017, Mr H moved his funds to another Sipp provider after getting frustrated with Equiniti’s service and later filed a complaint.

Equiniti initially upheld Mr H’s complaint and offered a payment for the inconvenience caused. 

But it refused to pay out on a potential tax charge from HM Revenue & Customs because it said the chance of avoiding HMRC treating the transfer as an unauthorised payment was made worse by Mr H’s decision to transfer the funds to another provider as this meant the mistake could not be corrected. 

An adjudicator at the Fos found problems first arose when an agent from Equiniti told Mr H to download and complete a transfer form and not a Sipp form. The transfer form was for funds to be received from other sources and not from pensions.

But the adjudicator said putting aside the human error, Equiniti’s systems should not have allowed the transfer to take place and should have picked up that the funds were being moved to a non-pension fund.

They also said Equiniti should have realised the mistake sooner.

Once Equiniti had received the transferred funds, Mr H contacted the firm to reiterate his plans to hold the funds in a Sipp.

Equiniti stated: “Please be advised that upon viewing your account I can confirm that you have not got a Sipp account opened with us.”

The adjudicator said it was at this point the firm should have realised something had gone wrong.

According to the Fos, HMRC allows for errors to be corrected and an unauthorised payment charge to be avoided if the correction is made within a reasonable time but by the time Mr H transferred to another Sipp it was too late to avoid a penalty.

Ombudsman Keith Taylor agreed with the adjudicator’s conclusions.

Mr Taylor said: “Mr H is a lay person. He is not an expert in these matters and would have no reason to know that he had been directed to the incorrect transfer forms.