Pension provider, James Hay, was hit with some surprise news this month as an appeal saw its payout over a pension delay soar by 2,000%. The case should serve as a reminder to any pension firm to stamp out any delays in the pension process.
James Hay had initially been ordered to pay £2,000 in compensation to one of its customers, known as “Mr T” for this case, after the firm caused a delay in a pension transfer, causing him to miss out on what he hoped would be a valuable investment opportunity.
Mr T had been looking to transfer his small self-administered pension into a self-invested personal pension plan. As well as £220,000 in cash, he had cash and stocks with Barclays Stockbrokers (BSB) in his SSAS. However, after BSB notified him it would be closing its pension trader accounts after 30th June 2016, he emailed James Hay asking them to begin the transfer.
Mr T requested the transfer to go through before the Brexit referendum on 23rd June 2016, however this did not happen and it wasn’t until 19th August 2016 that £250,000 in cash made its way from James Hay to Mr T’s new SSIP with Hargreaves Lansdown. A week after that, six out of seven lines of stock were transferred to the new provider with the last line being processed on 3rd October 2016.
Because of these delays, Mr T argued that he had lost the opportunity to invest in stock markets after the referendum result which could, he believes, have represented an excellent investment opportunity. Remember, this was the morning which, as one investor described it, had ‘gold in its mouth’. Mr T had hoped he would have been one of those to benefit.
James Hay argued that it had carried out its duties in a satisfactory manner, although it admitted there had been two exceptions caused by miscommunication. The Ombudsman found that while there had been maladministration on the part of James Hay, the compensation should be set at only £2,000.
In explaining this figure, the Ombudsman said that the exact level of loss claimed by Mr T was not measurable. Mr T appealed, claiming that the compensation was not enough and that the Ombudsman should have taken into consideration how much money could have been made had the transfer happened in a more timely manner.
The court sent the decision back to the ombudsman saying it should identify when the money would have arrived without maladministration from James Hay. It should then consider what Mr T would have done with the money.
In this second finding, the Ombudsman found that the money should have arrived by 23rd June 2016, just in time for the referendum, and that Mr T would have invested the full amount in the FTSE 100 Index immediately after the leave vote. As such, it concluded the losses would have been much higher than originally thought.
Although it is impossible to say for certain what he would have done with the money or which stocks he would have invested in, the Ombudsman still determined that it was possible to make a reasonable estimate.
“If £250,000 had been invested when the FTSE Index level fell to 5,788, a profit of about £43,700 would have arisen when that Index rose to 6,800 in August 2016.”Ombudsman, Anthony Arter
He therefore added, more than £41,000 onto the compensation in recognition of this lost investment opportunity. James Hay for its part has accepted the revised ruling and says it is “in the process of arranging the settlement with the scheme.”
Lessons to be learned
The ruling might have been a shock for the firm, but as with every penalty notice issued, it provides an opportunity for firms to learn from their mistakes. It shows that, not only can they be found culpable for delays in the transaction, but the ombudsman is willing to make an estimate of the likely losses the client would have incurred. For other companies, the lesson is simple. Don’t drag your heels on transactions. The results could be more damaging than you think.