The Financial Ombudsman Service has partially upheld a complaint by a client unhappy she could breach the lifetime pension savings allowance.
A client, referred to as Ms B, complained MPL Wealth Management Limited should have advised her to contribute to her husband’s pension instead of her own as this would have been more tax efficient.
Ms B is a higher rate tax payer while her husband is a basic rate tax payer.
In October 2010 the government announced plans to reduce the lifetime allowance from £1.8m to £1.5m and at that time Ms B was 49 years old and her pension was worth around £500,000.
Ms B complained to MPL in 2015 after speaking to a new adviser about why she hadn’t been putting cash in her husband’s pot rather than risking saving more than the continually shrinking lifetime allowance.
MPL argued that it couldn’t have predicted the reductions in the limits made by the government and it could not be assumed that Ms B’s pension would be affected by the change.
But the ombudsman ruled that in October 2010, there had been an identifiable risk that Ms B would breach the lifetime allowance if she continued the same pattern of contributions.
Fos ruled this should have been discussed – hence the complaint was partially upheld - but added she would have reached 55 in January 2016 so she could crystallise at any point from then on, when the plan value was close to the lifetime allowance.
The ombudsman also noted the lifetime allowance in 2026 could not be predicted now and it might even be abolished.
The ombudsman added foregoing higher rate relief to avoid an uncertain and distant liability would probably not have been appropriate.
In a final decision, ombudsman Adrian Hudson said: “We do not know what Ms B and her husband’s positions will be in 10 years’ time, or what the tax treatment of pension benefits will be.
“Ms B was some way off retirement and leaving aside the lifetime allowance issue, which I will address below, I think a lot of advisers would have recommended against giving up an immediate tax advantage of higher rate tax relief in order to protect against a future uncertain, remote tax liability.
“In my experience most advisers would have advised to pay into the arrangement of Ms B as she would have received higher rate tax relief on the contributions paid.
“I do not consider it fair and reasonable to hold the business liable for the fact that investment returns over the last few years have been good and the government decided to reduce the lifetime allowance limit.”
MPL argued Ms B’s husband had never been its client, so it couldn’t have advised him.