(2 min read)
The Pensions Ombudsman has recently had to consider whether a pension provider was entitled to offset a member's investment gains when calculating compensation for an error which delayed the transfer value and resulted in it being approximately £10,000 less than it otherwise would have been. The reinvestment of the transfer value did not involve "mirror image" investments, and the Ombudsman decided that in the circumstances the provider could not apply an offset. Here we take a look at the facts of the case and the key points from the Ombudsman's determination.
Upholding a member's complaint regarding a three day delay in processing his transfer value, the Ombudsman has held that the provider responsible for the delay was not entitled to offset the member's subsequent investment gains against the compensation payable for loss caused by the delay (Mr Y CAS-43661-G4N2).
The SIPP provider acknowledged that it had been responsible for an administrative error which had led to a delay of three working days in processing the member's transfer value. The delay in disinvesting the member's funds had resulted in the member's transfer value being approximately £10,000 less than it would have been had no delay occurred.
Following the transfer, the member invested his fund. The SIPP provider argued that the same downward market movements which had caused the reduction in the transfer value was more than offset by the corresponding decrease in the cost of the investments that the member had purchased when he reinvested, and that overall the member had thus gained over £6000. The member argued that this was the wrong approach, as the new investments made were not directly linked to the disinvestments. They were not "mirror image" investments, just the result of a separate set of investment decisions made after the transfer value had been processed. The value of the transfer value should have been more than £10,000 higher and the provider should not be allowed to use a non-connected investment gain to mitigate its error. The member pointed out that he had not simply invested the funds at the earliest opportunity. He had waited for several days until he had identified what he believed would be an advantageous time to effect the trades.
The Ombudsman accepted the member's arguments, finding that the SIPP provider's error had not determined the date on which the member invested his transfer value. The Ombudsman noted that this was not a case of disinvesting and reinvesting in the same funds. The member had always planned to invest in new stock following the transfer.
Our thoughts
This case is notable for two reasons. Firstly, it illustrates that even where a delay caused by a SIPP provider error is relatively short, the Ombudsman is still prepared to hold the SIPP provider responsible for losses caused by the delay. Secondly, it illustrates that where there is disinvestment followed by reinvestment in connection with a transfer, but this does not involve "mirror image" investments in identical funds, the Ombudsman will not necessarily regard the reinvestment as relevant when assessing loss caused by a transfer value delay.
