Hargreaves Lansdown’s advice arm has been ordered to compensate a client after failing to properly assess his case for a pension transfer.
The client, who the Financial Ombudsman Service called Mr D, said Hargreaves had failed to fully assess his attitude to investment risk or advise him on a pension strategy when it told him to transfer out of his DB pension scheme.
The problem started in November 2014 when Mr D sought advice on possibly transferring out of his scheme.
He already held a self-invested personal pension with Hargreaves Lansdown, valued at £59,000, which was built up from his own contributions and a previous transfer.
Hargreaves advised Mr D to transfer out of his scheme in March 2015 on the basis that he could take the tax free cash and then purchase an annuity to provide the same type of benefits as those of the DB scheme.
Mr D then transferred his £306,277 pension into a Sipp but Hargreaves held this in a cash fund as it said it hadn’t received any investment instructions from Mr D.
It advised Mr D he would need to apply for a flexible drawdown plan if he wanted to access his tax free cash.
Mr D then asked the firm for investment advice but later said he had “lost faith” in Hargreaves Lansdown’s advice and decided to contact other advisers.
He eventually agreed to switch his Sipp to another provider – using a different adviser. He withdrew his tax free cash sum of £91,361.62 and invested the remainder into a flexi access drawdown plan with a ‘cautious income strategy’.
He then complained to the Fos saying the advice Hargreaves had given was unsuitable and had not discussed his attitude to risk or compared his DB scheme against a Sipp.
Ombudsman's view
Ombudsman Keith Lawrence believed Mr D was willing to draw his DB pension benefits, as long as it was appropriate for him to do so and that he wanted Hargreaves Lansdown to confirm what was in his best interests with regards to the benefits of the scheme.
In documentation sent to Mr D, Hargreaves said: “The advice provided will look at whether the transfer value you have been offered represents good value for money compared to the benefits you will be giving up as a result of the transfer.
“It will also compare the retirement and death benefits that your scheme provides with those you could potentially secure if you transferred.
“In providing our advice we will take into account where you plan to invest, your capacity for risk and consider your needs and objectives”
Hargreaves did a calculation to show what CETV was required to provide an annuity that was higher than Mr D’s existing pension and recommended that the transfer was feasible – as long as Mr D took the tax free lump sum.
But Mr Lawrence said although Hargreaves Lansdown had confirmed the transfer would not be in Mr D’s interest if he didn’t draw the tax free cash, it did not “otherwise provide an accurate comparison” between the two pension schemes.
He also noted that he had not seen any evidence of a discussion concerning Mr D’s attitude to risk or about the potential underlying investments that might have been suitable in this case.
Mr Lawrence said: “The costs and charges of such investments would have been important when comparing the costs of transferring against other options so I think that should also have been established.
“And if Hargreaves Lansdown believed that Mr D needed to remain in cash until his situation was clearer – or he annuitised, then it’s not clear why it was in his best interests to transfer at that point in the first place.”
He concluded that Hargreaves Lansdown should have advised Mr D to postpone the DB transfer until he was certain he needed to draw a regular income and had an idea of what investments he would make with his Sipp.
Mr Lawrence said: “My view is that Mr D was more inclined to opt for a regular, guaranteed income. And so to bolster his other income, he could just as well have relied upon funds from the other Sipp he held, withdrawing the funds in entirety if needed under the pension freedoms, and maintained his guaranteed benefits within the scheme.”
He concluded Mr D had not been given all the information he needed to make an adequate comparison between the DB scheme and an annuity or drawdown option via a Sipp.
Mr Lawrence therefore ordered Hargreaves Lansdown to put Mr D as close to the position he would be in now had it not advised him to transfer his DB pension.
It must also pay £250 for the distress and inconvenience caused.
amy.austin@ft.com
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