A pension scheme member has lost a case against its trustee, employer and administrator where he claimed they should have told him to expect to incur an annual allowance charge.
The case involves a Mr Ramsey who transferred DB benefits from one scheme to another DB arrangement in May 2011, shortly after the annual allowance was reduced to £50,000.
The transfer triggered an annual allowance charge of 55 per cent, totalling £7,553.43.
Ramsey argued that if he had known of these potential tax consequences he would have transferred his benefits earlier – before the annual allowance was reduced with effect from 6 April 2011 – and avoided the liability. He claimed that the trustee, the employer and the administrator were under a duty to warn him of the tax consequences of his decision.
The Deputy Pensions Ombudsman rejected Ramsey’s complaint on four grounds:
– there was no such legal obligation on the respondent parties. When Ramsey decided to exercise his option he was not yet a scheme member. Neither was there a common law duty on the employer to inform Ramsey of the financial benefits of exercising his option before a change in tax law. The administrator’s only duty was to provide an annual pensions savings statement;
– the written pension estimate did not constitute advice. It stated that if Ramsey required financial advice he should contact a financial adviser;
– the respondents were unsure of the tax implications of the option. As the correct position was only confirmed by HMRC in late 2012, they could not have reasonably been expected to inform Ramsey that he would incur a charge; and
– the DPO found that on balance, if Ramsey had been informed of the potential liability, he would still have exercised the option given the “very considerable” disparity in benefits.
In a separate case of a Mr Dawson, the Pensions Ombudsman case determined that a Sipp provider does not have to remind its client before the end of his pension year that he had not taken the full amount of his pension. The PO held that the administrator and trustee of a Sipp had no general obligation under trust law, contract or statute to remind a member who was making income withdrawals under an unsecured pension option that he could draw down further income during a given pension year.
A spokesperson for Norton Rose Fulbright says: “There have been few Ombudsman complaints concerning the unsecured pension regime or drawdown pensions in general. The decision in Dawson will be welcomed by providers. Though determinations of the PO and DPO are binding only on the parties involved and do not provide precedent for future cases, they provide nonetheless valuable directions. A balance must be struck between providing an adequate level of detail in member communications without giving actual financial advice. Where any financial advice is given, care must be taken to ensure it is generic advice only. These cases are a reminder of the importance of disclaimers and recommendations to seek independent financial advice.
“The trustee, employer and administrators in Ramsey may feel fortunate not to be considered responsible for failing to warn the member of the changing tax rules, especially given the scale of the reduction in the annual allowance. Though the Ramsey and Dawson decisions will be welcomed by trustees and administrators, they should give rise to extra care being taken when informing members of their options in the future.”