The client complained after he took Brewin Dolphin’s advice to deposit funds into a self-invested personal pension but was ultimately left with a £60,000 tax liability after he triggered the money purchase annual allowance.
Ombudsman Kim Parsons ordered the firm to cover the additional tax bill and any charges which have occurred.
The problem started in August 2018 when the client, who the Fos called Mr B, contacted Brewin Dolphin for advice on his investment options.
Mr B’s objective was to have a tax efficient investment vehicle in his own name as he did not want to invest in his existing pension, which was a small self-administered pension scheme (SSAS), of which he was a member alongside other family members.
Brewin Dolphin recommended he invest the £160,000 funds into a Sipp on the basis that Mr B had not contributed to a pension in the past three years and so had built up his annual allowance.
But in February 2019, Mr B was told by his accountant he had incurred a tax liability of approximately £60,000 because he had previously taken a withdrawal from a personal pension in 2015, which had triggered the MPAA.
The MPAA, introduced in 2015 to coincide with pension freedoms, is the amount a person who has already begun drawing on their pension can pay back into their retirement pot each year without incurring a tax charge. It is currently set at £4,000.
Therefore, Mr B only qualified for tax relief on £4,000 of the money he placed in his Sipp and was liable for income tax on the remaining £156,000.
Mr B said the Brewin Dolphin adviser never asked him whether he had made a withdrawal from any pension funds in the past four years.
But Brewin Dolphin argued Mr B had signed a declaration accepting that he understood that he had only been provided with generic tax advice and that he should seek clarification from a tax adviser or accountant.
It also said its recommendation was based on the adviser's understanding of Mr B’s circumstances at the time, taken from the information Mr B had provided.
Ombudsman’s findings
Ms Parsons said it was not disputed that Mr B didn’t show the adviser a copy of the letter regarding his 2015 drawdown until after he landed the tax bill and he also did not reveal that he had taken a payment from his pension.
However, Ms Parsons said as this letter was sent three years prior, Mr B may not have known that this information was still relevant and pertinent three years later.
The Fos said it was down to Brewin Dolphin to fully establish what other pensions Mr B had, or had crystallised, over the relevant period, to establish whether he could use these annual allowances.
Ms Parsons said: “I think Mr B has lost out because of what BDL [Brewin Dolphin] did wrong because if he had been asked, and made aware it was relevant, I think he would’ve told BDL about his earlier drawdown.
“In these circumstances, I don’t think BDL would’ve made the recommendation it did, because it accepts that Mr B is financially worse off having followed that advice.
“I therefore don’t consider that Mr B was provided with suitable advice and so it follows that I uphold his complaint.”
A Brewin Dolphin spokesperson said: "We are sorry that on this occasion our advice fell short of our usual high standard."
amy.austin@ft.com
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