A Glitch

I have a friend. No, really, I do. I’ll call him Martin (his name is Martin). Martin was a member of a defined benefit scheme in the 1990s where he earned a sizeable pension before leaving to set up his own business. He’s now in his 50s and as men of that age do he has turned his thoughts to sorting out his finances.

After taking detailed financial advice, Martin decided to transfer his deferred pension into a personal pension arrangement. Nothing unusual about that.

Unfortunately, things went wrong then. The transfer paperwork got chewed up by both the financial adviser and the pension scheme administrator (I’m not going to name either – you’d know both names but my point, which I am coming to, bear with me, is not really anything to do with either of them and I recognise everyone slips from time to time). Nothing unusual about that either – the procedure is now complex and easy to stumble over.

The consequence of this fumbling was that Martin’s transfer value went down because of market movements by just under ￡100,000. Ouch. Very ouch, in fact.

It was at this point that Martin started talking with me. Pretty obviously, he wasn’t going to wave goodbye to the thick end of ￡100,000 which had disappeared for reasons that were nothing to do with him.

I’m sure you can guess the next bit of this story. The financial adviser blamed the pension scheme administrator and the pension scheme administrator blamed the financial adviser.

So Martin had to start formal complaints procedures. And here’s the point of my story. His complaint against the administrator, and by extension the scheme trustees, had to be brought via the Pensions Ombudsman. His complaint against the financial adviser had to be brought via the Financial Ombudsman Service.

This causes multiple problems. First, they have very different time limits. The Financial Ombudsman Service gives you just 6 months from the rejection of your complaint by the financial adviser. The Pensions Ombudsman gives you 3 years from the act complained of.

Secondly, and still more importantly, neither has jurisdiction to make decisions affecting the other. So in theory everyone could agree that the fault was either the administrator’s or the financial adviser’s, but Martin might have lost before the Pensions Ombudsman and the Financial Ombudsman if each decided that the fault was not that of the party in front of them. (Or Martin might have won twice over, but he wasn’t as worried about that for some reason.)

So it’s a fearful mess. This is a mess that’s in no one’s interests, not even the financial adviser or administrators, because they may get caught up in cases where they have no direct input and where findings might be made about them, if not against them, which they have no formal means of challenging but which might be damaging to their interests.

I consulted a friendly pensions litigator, who pointed me in the direction of a memorandum of understanding between the two offices. Here it is. As you can see, it doesn’t really cover the problem at all.

“Interesting”, perhaps you are saying to yourself, “but isn’t this a bit of an edge case?” But the answer is: no, not really. It is expected for financial advice to be given before a member transfers defined benefits to a personal pension arrangement. The procedure is laborious. Mistakes are easy to make. Inevitably when things go wrong, fingers will be pointing in multiple directions: failure is an orphan.

So this problem has in all probability come up before. In practice, it will again, repeatedly. This mess needs to be sorted out.

Not for Martin. Fortunately in his case, the head of pensions at the sponsoring employer stepped in. She recognised things had gone wrong and arranged to have them put right. Things were helped by changes in markets meaning that the transfer value sprang back up again.

But there will be future cases, future cases where the complainant will be less articulate than Martin and where the complainant doesn’t have easy access to help navigating this maze. Could the powers-that-be please fix it?