Upheld: unsuitable pension transfer advice - irresponsible transfer of defined benefits complaint against Quilter Financial Services Limited

Decision detail

Summary

Mr F, aged 59, sought advice from Quilter in October 2017 on how to achieve a net monthly retirement income of £1,500 from age 60. Quilter recommended transferring his defined benefits from two occupational pension schemes into a personal pension with flexible drawdown. The transfer value was £323,759.56, but the cost to replace the safeguarded benefits was £492,611, representing a 34% loss of value. The critical yield required to match the DB benefits was 14.3% pa, far exceeding the 3.1% discount rate deemed achievable and even the FCA's 8% high projection rate. The ombudsman found that Mr F could achieve his income objective without transferring, using his DB benefits (£6,712 pa with tax-free cash), self-employment income, and existing DC pension. The flexibility and death benefits objectives did not justify relinquishing guaranteed escalating income. The ombudsman upheld the complaint and ordered Quilter to calculate redress using FCA guidance, offer it as a cash lump sum with the option to augment into the DC pension, and pay £300 for distress and inconvenience.

The Ombudsman's reasoning

The ombudsman applied COBS 19.1.6 which requires firms to assume a DB transfer is unsuitable unless they can clearly demonstrate it is in the client's best interests. The critical yield of 14.3% far exceeded the discount rate of 3.1% pa and even the FCA's high projection rate of 8% pa, indicating Mr F would likely receive lower benefits by transferring. The ombudsman found that Mr F could achieve his stated objective of £1,500 net pm income without transferring, using his DB benefits (£6,712 pa with tax-free cash), self-employment income (£600 pm), and DC pension drawdown. The flexibility objective, while appealing, did not justify relinquishing guaranteed escalating income. The death benefits argument was weak given Mr F had no health issues and the spouse's pension under the DB scheme would have provided valuable security for Mrs F. The ombudsman rejected Quilter's argument that Mr F's early opt-out of the scheme indicated he would have transferred anyway, finding instead that this likely reflected Mr F creating post-employment options rather than a firm intention to transfer. The ombudsman concluded that if suitably advised with a clear alternative strategy retaining some guarantees, Mr F would more likely have retained his DB benefits.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website