The Financial Ombudsman Service found Tilney’s advice was flawed on the basis that it was working with transfer values which were understated.
Despite the complainant being a qualified adviser herself, the Fos accepted the argument that her knowledge was out of date as she had stopped advising three years before approaching Tilney.
As such, Tilney was told to compensate its client.
What happened?
The issue first arose when the client, who the Fos called Mrs H, sought advice from Tilney about deferred benefits in three occupational pension schemes, although this complaint concerns the advice given on one of these schemes.
Mrs H joined the workplace scheme in July 1997 and left in October 2000.
She was in the defined contribution section of the plan until she was 30 and then accrued benefits in the defined benefit section.
A cash equivalent transfer value was issued by the scheme’s administrators in May 2017 which totaled £92,851.
Of this £73,141 related to the DC benefits and £19,709 was the DC benefits.
In July 2017 Tilney received a DC benefit statement from the workplace scheme which showed the value of the pension as £31,991.
Tilney’s recommendation to transfer was on the basis that the value of her DB benefits was £92,852 and £31,991.63 for her DC benefits.
She accepted this advice and in September 2017 just £94,624 was paid into Mrs H’s self-invested personal pension.
But Mrs H queried this value as it was lower than expected.
Tilney upheld Mrs H’s complaint on the basis it should have done more to verify the information provided by the administrators and offered to pay £300 for the inconvenience caused.
However, it stood by its belief that the transfer advice was suitable.
Mrs H disagreed and referred her complaint to the Fos.
Adjudicator’s findings
An adjudicator decided to uphold the complaint after she found that Mrs H’s decision to transfer was based on the wrong information.
She also found that had the critical yield been correctly calculated, it is likely to have been much higher than the incorrect figure of 6.65 per cent, which took into account the DC benefits which represented around a third of the total transfer value.
Mrs H’s attitude to risk was medium to high but this did not mean the advice to transfer was suitable or that even if she was comfortable taking a risk that she had the capacity to do so, the adjudicator said.
But Tilney argued that Mrs H had financial services qualifications, had been employed as an adviser for 14 years and was authorised to advise on transfers.
The firm argued she had sufficient knowledge to understand her pensions and the advice given.
But Mrs H told the Fos she had stopped working in July 2014 which was more than three years before she sought advice from Tilney.
Due to how quickly pensions legislation changes, her knowledge was therefore out of date.
Ombudsman’s findings
Ombudsman Lesley Stead agreed that Mrs H would have had a better understanding than most about pensions and she would have understood the advice.
But she also said it was a fair point that her knowledge would be out of date especially considering pension freedoms were introduced in 2015.
Stead argued that the issue wasn’t whether the advice was understood but whether Mrs H would have made the same decision had she been given the correct information.
Mrs H was expecting £30,000 more to be transferred, therefore the ombudsman said if the correct critical yield had been quoted it would have likely changed her decision to transfer.
Stead stated: “[Mrs H] said she’d have reconsidered if she’d been given the correct advice.
“I don’t see any real reason to doubt that and when there’s no dispute that Tilney’s advice was based on an inflated transfer value and the wrong, understated, critical yield.
“That meant Mrs H wasn’t in a position to make a properly informed decision.”
The ombudsman therefore upheld the complaint and ordered Tilney to carry out a redress calculation in line with the pension review methodology.
Tilney also offered to pay Mrs H £200 for distress and inconvenience which the Fos said was fair and reasonable.
amy.austin@ft.com
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