Not upheld: pension policy lapsed without value; suitability of plan; failure to collect contributions during maternity leave; non-disclosure of member charges; failure to notify of policy lapse complaint against St. James's Place Wealth Management Plc (formerly The J. Rothschild Partnership)

Decision detail

Summary

Mrs H complained that her J. Rothschild Assurance Personal Retirement Plan lapsed without value in 2003. She raised multiple issues including the suitability of the plan given she was going on maternity leave, failure to collect employer contributions during maternity leave, non-disclosure of member charges, and failure to notify her of the policy lapse. The plan had significant member charges (£42 per annum increasing with earnings index) and a front-loaded charging structure (4% for first 24 months). SJP incorrectly recorded Mrs H as leaving employment rather than going on maternity leave and placed the plan on contribution holiday in August 1996. The ombudsman found that the policy was always likely to lapse without value once contributions stopped early, as the charges would erode the fund value. Although SJP made errors in not deducting charges in early years and failing to notify Mrs H, these did not materially affect the outcome. The complaint was not upheld, but SJP's offer to refund contributions remains available.

The Ombudsman's reasoning

The ombudsman found that the policy was always likely to lapse without value once contributions stopped early in the plan's lifetime. The member charge was significant compared to the contribution amount and increased with average earnings index. The front-loaded charging structure meant that without ongoing contributions, the charges would erode the fund value over a short period. The confusing initial valuations where the policy held its value were caused by SJP's delay in applying charges correctly in early years, but once rectified, the policy value went to zero. This error did not materially affect Mrs H as the policy would have lapsed in any event. The Key Features Illustration included a warning about this potential consequence. The ombudsman noted that while the policy may have been destined to lapse unless Mrs H stayed with the employer or made personal contributions, the alternative was not to receive employer contributions at all.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website