In a case involving a delay in the payment of a substantial transfer value, the Pensions Ombudsman has accepted the member's argument that, had the transfer value been paid without delay he would have invested in a named fund which invested in Japanese smaller companies (the "Japanese Fund"), and that the loss suffered as a result of the delay should therefore be calculated on that basis (Mr R CAS-60559-J2R8). This was despite the fact that (a) the member had originally told the SIPP provider that he intended to invest in Japanese Yen, and (b) when he eventually received his transfer value, the member did not invest in the Japanese Fund.
Arguments over how the member would have invested in the absence of delay
Having considered the delays in the transfer value process, the Ombudsman concluded that the SIPP provider should have paid the transfer value 29 working days earlier than it actually did, and that the member, Mr R, should therefore be put back in the same position as if the transfer value had been paid 29 working days earlier. The SIPP provider argued that, with the benefit of hindsight, Mr R had changed his mind about how he would have invested his cash. It pointed out that when Mr R had complained to the SIPP provider during the delay period, he had been insistent that he intended to invest his cash in Japanese Yen.
A notable feature of the case was that it turned out that the receiving scheme did not offer the option for members to hold cash in Japanese Yen, so Mr R's original stated plan of investment was never going to be available to him. However, the Ombudsman accepted that Mr R, who had worked in financial markets for over 30 years, had a preference to invest in Yen-based investments. He noted that Mr R had submitted a detailed explanation for his positive view of such investments at the relevant time, including how he believed that recent political developments in Japan would be a positive development for Japanese equities. Mr R also argued that his conviction that Japanese equities were a good investment at the relevant time was reflected in his messages to his own clients at that time. The Ombudsman rejected the SIPP provider's argument that it would be reasonable to use the FTSE UK Private Investor Balanced Index to estimate what growth the funds would have achieved had they been invested following the transfer.
Regarding the fact that Mr R had not actually invested in the Japanese Fund when he eventually received his transfer value, Mr R said that by the time the transfer value was paid, he believed he had already missed out on the recovery in equity markets so he decided to retain it as cash and wait for another market downturn. He eventually invested in two other funds two and a half months later when the expected market downturn failed to materialise. The Ombudsman accepted that Mr R was the sort of "canny investor" who might have intended to do one thing if the money arrived on one day, but take advantage of a different opportunity if the money arrived on a different day.
The Ombudsman's order
The Ombudsman ordered the SIPP provider to pay compensation based on the investment return Mr R would have obtained had his fund been invested in the Japanese Fund during the period starting with the date when he would have received his transfer value (had there not been a 29 working day delay) and ending with the date on which his transfer value was actually received. He also ordered the SIPP provider to pay interest on that amount at the "Judgment Rate of Interest" (ie 8% per annum). He further ordered that Mr R should be compensated for any platform charges levied by the SIPP provider during the delay period (with interest added at Bank of England base rate). He also awarded Mr R £1000 for serious distress and inconvenience.
Our thoughts
Where a pension provider is held responsible for a transfer value delay, the question of what (if any) loss has been suffered by a member can be a complex one. This case shows that where there is evidence that the member is a sophisticated investor who can put forward compelling arguments about how he/she would have invested in the absence of delay, the Ombudsman may be prepared to attach considerable weight to those arguments. Even where the member invested differently once the transfer value was actually received, this will not necessarily be fatal to the member's case. In the case of a "canny investor" the Ombudsman may accept, as he did in this case, that the delay itself caused the member to change investment plans.
