Scottish WidowsSep 9 2020

Gated fund stymies Scottish Widows transfer

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Gated fund stymies Scottish Widows transfer

An adviser has slammed Scottish Widows for failing to facilitate a transfer because a fraction of his client's pension portfolio was in a gated property fund.

Phil Slater, director of Slater Financial, began the process of transferring a client's pension earlier this year.

He said the process was underway when the provider wrote to say the transfer could not progress because the client had some holdings in a suspended property fund.

In March, the coronavirus crisis caused open-ended property funds to close to redemptions and new investments because valuers could not value the assets within the funds with the required degree of certainty.

Scottish Widows wrote to advisers to explain some of its pensions invested in the suspended funds and from April it had to restrict withdrawals from, and payments into, these funds.

However, Mr Slater did not receive this letter until July - long after he had started the transfer process.

Moreover, he claimed Scottish Widows could lift its restrictions if the customer were to purchase an annuity, making the transfer ban rules seem arbitrary and risk "railroading" clients into going down an annuity route to access their pension.

Mr Slater told FTAdviser: “Scottish Widows' small print and red tape may state it can enforce a ban on transferring out, where a client is invested in property funds.

“But clearly it can override this suspension if the client purchases an annuity.”

He added: “I wonder how many other people looking forward to retirement have been railroaded into purchasing an annuity as the only choice to claim their retirement benefits now? The client may well end up with an unsuitable product. 

“This is totally at odds with the Financial Conduct Authority's specific aim of Treating Customers Fairly". He pointed to the FCA's document, which says TCF is to “minimise the sale of unsuitable products by encouraging best practice before, during and after a sale”.

He added: "This leaves a sour taste. Surely clients will be able to claim redress in the future?”

A spokesperson for the provider confirmed the restrictions do not apply to customers who wish to claim their retirement benefits - for example by purchasing an annuity either directly with Scottish Widows or with another provider. 

However, it cannot at the moment facilitate pension transfers to other providers.

FTAdviser also understands that while a full or partial transfer is not possible with this policy, a transfer can be carried out either when the fund suspension is lifted or six months after the transfer request was made in line with the policy terms and conditions.

The spokesperson said: “We are sorry we cannot facilitate a transfer at this time, due to the restrictions we have in place in our life and pension property funds. The managers of the funds aim to lift the suspensions when normal market conditions return. 

“While we published information online when these restrictions were put in place, we are sorry it took us longer than it should have done to write to our customers to let them know, and for the impact it has had. 

“It is important to point out the suspensions will not affect any customer who wishes to retire.”

Scottish Widows said it has offered £150 to Mr Slater’s client to acknowledge its issue in not sending out letters promptly enough.

Previous issues

A similar issue arose earlier this year (April) with another provider after an adviser had problems trying to access a client’s fund due to the property fund suspension.

Shelley McCarthy, managing director and financial planner at Informed Choice, explained that because 5 per cent of a client’s pension portfolio was locked in a property fund, she was initially told by Royal London she was unable to withdraw any of the cash.

Although the pension provider later arrived at a solution — which involved transferring the other 95 per cent of the fund into another portfolio — Ms McCarthy described it as a “clunky and convoluted” nightmare.

amy.austin@ft.com

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