Aviva Life & Pensions UK has been ordered to compensate a client after the Financial Ombudsman Service found it had failed to make it clear to him that his pension would be transferred into a self-invested personal pension.
Ombudsman Caroline Stirling said Aviva should put the client's pension in the position it would be in had it not been switched to the Sipp.
The client, who the Fos called Mr C, had a personal pension with Aviva and in 2016 wanted to take 25 per cent tax-free cash from the policy.
As this wasn’t possible through the policy he held, Aviva transferred Mr C’s fund to a self-invested personal pension, from which Mr C took the tax-free cash that he wanted, while the rest of the fund remained in cash.
But in the complaint Mr C said he didn’t become aware of this transfer until late 2018 and did not realise the fund had been transferred to a pension he would have to manage himself.
Subject access request
Aviva sent a final response to Mr C’s complaint by email in February 2019 however he said he hadn’t received the email. In that email Mr C’s complaint wasn’t upheld.
The initial Fos investigator decided the complaint should not be upheld as he said Aviva had not given Mr C any advice about transferring his pension in 2016.
He was also satisfied that Aviva had made Mr C aware and provided information that he was responsible for managing the investments in his new pension.
But Mr C disagreed and made a subject access request to Aviva, arguing the firm hadn’t supplied all relevant phone call recordings to the investigator, which had made his conclusions inaccurate.
In particular, there was one phone call after Aviva's email to Mr C in which an adviser from the firm accepted he had received poor service when he transferred his pension and offered compensation.
The adviser on the call agreed that the information Mr C had been given wasn’t as clear as it should’ve been and accepted that Mr C might not have realised what he was agreeing to when he signed up to the Sipp.
He offered him £350 compensation and that Aviva would cover the cost of an additional financial advice session.
However, Mr C said the compensation was not enough and after he did not hear back from the adviser he turned to the Fos.
Ombudsman decision
The ombudsman said: “I was aware that Mr C wanted to take 25 per cent tax-free cash from his original pension fund, but not access the remaining benefits at that time - but this wasn’t possible through the policy he held, which is why Mr C needed to transfer to a different type of policy. Mr C’s original pension was a personal pension where the investments were managed by Aviva.
“The business appeared to accept that it didn’t make it clear to Mr C that he would be responsible for managing the investments in his new Sipp.
“I thought that if Mr C had been given clearer information from Aviva in 2016, it’s unlikely he would’ve transferred to a Sipp and simply left his fund in cash. On balance I think he would’ve invested in a managed fund after the tax-free cash had been taken.”
To find a solution, she said Aviva should reconstruct Mr C’s Sipp, at the date of this decision, as if he’d invested in the fund or funds that he was invested in before he took the tax-free cash.
If the firm is unable to do so, it should pay any amount of loss, calculated at the date of this decision, directly to him.
She said: “But had it been possible to pay into the plan, it would have provided a taxable income. Therefore the compensation should be reduced to notionally allow for any income tax that would otherwise have been paid.
“The notional allowance should be calculated using Mr C's actual or expected marginal rate of tax at his selected retirement age. For example, if Mr C is likely to be a basic rate taxpayer at the selected retirement age, the reduction would equal the current basic rate of tax. I have assumed that Mr C will be a basic rate taxpayer, and so a deduction of 20 per cent would be appropriate here.”
The ombudsman said any reconstruction of the policy should be implemented promptly after Aviva is notified of Mr C’s acceptance of this decision and it should confirm to him that it has been completed.
She also urged Aviva to pay Mr C £350 for the trouble and upset this matter has caused.
sonia.rach@ft.com
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