Not upheld: pension transfer suitability; irresponsible pension transfer advice complaint against Clarke Fencott LLP

Decision detail

Summary

Mr S complained that Clarke Fencott's advice to transfer his DB pension scheme (CETV £451,382.93) was unsuitable. The firm recommended taking full tax-free cash of £112,845, purchasing an annuity for £81,800, and investing approximately £245,000 in drawdown. Mr S's primary stated objective was to purchase a property for security and peace of mind after being forced from rental accommodation while suffering from long Covid. The ombudsman found that although the recommended portfolio was unlikely to achieve the 10.43-13.91% critical yield required to match DB scheme benefits, the transfer was suitable because Mr S had a genuine need for the increased tax-free cash to purchase a property, which would reduce his income needs by approximately £7,500 annually by eliminating rent. The ombudsman rejected arguments that the failure to purchase a property rendered the advice unsuitable, finding the advice put Mr S in a position where property purchase was possible at the time of advice.

The Ombudsman's reasoning

Although the ombudsman acknowledged that Mr S was unlikely to achieve the critical yield required to match his DB scheme benefits at retirement, the decision focused on whether there were other compelling reasons to recommend the transfer. The ombudsman found that Mr S had a genuine and reasonable need for increased tax-free cash to purchase a property, which would reduce his income needs by approximately £7,500 per year by eliminating rent. The ombudsman considered that the blended approach of some guaranteed income through an annuity plus flexible drawdown was suitable for a cautious investor in Mr S's particular circumstances, as it provided both security and the means to achieve his property purchase objective. The ombudsman rejected the argument that the failure to purchase a property rendered the advice unsuitable, finding that the advice put Mr S in a position where property purchase was possible, and the fact he did not pursue it did not make the advice unsuitable at the time it was given. The ombudsman also found that Mr S's stated circumstances at the time of advice (single, no dependents) meant he did not need the spouse and dependent benefits of the DB scheme.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website