Client Case Study (#02)

by George on September 11, 2013

I get an email.

A guy has been diagnosed with abdominal cancer and given 12 months to live. He is married with four children, one just a few months old. Chemotherapy due to start soon. Good job with huge Death-in-Service benefit which will pay off the mortgage, but little in way of savings. Five bits of pension including the employer’s one, but he has only been there a couple of years.

Written authorities obtained from client, so getting the pensions paid out in cash should be a piece of cake? Just a few forms really? Well no.

* First pension provider is a large demutualised insurer. They send their pension data after a few days with the Ill-health Declaration. This is sent to the oncologist concerned with a post paid envelope so the form can be sent back directly to the pension provider. So far, so good.

* With the second pension, client informs me that his policy is “vested” asking what does that mean? The guy has a financial adviser, so this question worries me – advisers are supposed to explain that sort of thing. Answer, you are drawing benefits already so CancerIFA can’t help.

* Third pension pot, and information comes back with plenty of paperwork informing me that this particular policy does not have the Serious Ill-heath Lump-sum payment facility? Reason? It’s an income drawdown product. The client has the option of an enhanced annuity and tax-free cash, but with life-expectancy of 12 months, hardly an attractive option. Was this pointed out to the client in 2009 when he reorganised all his pensions? Client doesn’t remember, so I request a copy of the report.

* Fourth pension pot is with an insurer that stopped writing new business over 10 years ago, which insists on the client signing a declaration that he has ceased employment. Their form is out of date, and as they are only looking after existing business, probably felt there would be no need. The old rules about having to cease employment before taking pension benefits disappeared on “A Day” or 6th April 2006.

After this error is pointed out, another letter comes back quoting a schedule in the Finance Act 2004. I forward this to a pension lawyer who suggests that the pension provider might have grounds for withholding payment, so I leave it there.

Chemotherapy is proceeding but with side-effects and the copy of the medical report does not look good, plus client is still working hard. How long is he going to keep working? Has he informed his employers that he is having treatment? Client politely tells me “don’t go there!” so I leave it for now, suggesting that he checks his contract of employment. What is he supposed to tell his employer in situations like this?

The section quoted in the Finance Act still niggles me, so I look it up again. The schedule concerned refers to Pensions in Payment and to Payment of Death Benefits – neither of which are relevant. Quoting the proper schedule of the Finance Act, I inform the insurer again that they are wrong. They have a copy of the doctors report and with the passage of time we are down to 8-9 months life-expectancy, so can the client have his money please? All goes quiet until I get a call on my mobile informing me that they paid out the previous week. Hooray.

We are Making Progress

First and fourth providers have paid out when the client finds another pension that he has forgotten about. The provider’s address on their website is wrong so a reply takes two weeks. They insist on snail mail, slowing everything down but over several more weeks, this is paid out too.

Besides getting the pensions paid out, there is a duty of care to point out related issues like:

* does the client have an up-to-date will? Has he got a solicitor/will writer?

* all the children are young. Who will look after them if the widow/wife dies? This means Guardians for the Children as an extra part of any Will or Last Testament.

After reminding the client twice, neither of the above questions are answered.

We Recommend that you do Income Drawdown

The first 16 pages of the pension report finally turn up. Back in 2009, client decides to reorganise his pensions and the adviser recommends Income Drawdown. Section 8 mentions Penalties and Benefits Lost in the new arrangement. It does not mention that Income Drawdown is a benefit crystallisation event meaning that the Serious Ill-health Lump-sum payment option is lost.

While no one reorganises their pensions expecting to get cancer, the omission is a clear error which has left him and his family worse off. A 3 line paragraph and a two minute explanation at the meeting would have covered it. Interestingly, the client suggests complaining to the provider as they are a big anonymous insurance group and seems reluctant to complain to the adviser. I have to point out that the issue is bad advice, not bad provision and it is the firm of advisers that is at fault. Still reluctant to make a complaint, for his family’s sake, I tell him that he has to. The slow answer from the firm of advisers is unprofessional and deplorable, implying that it was more or less his fault, because he came to them? Sometimes you want to scream.

A complaint to the Financial Ombudsman Service can only start after the complaints process with the advising firm is completed, so I ask him not to waste any time. Additionally, the Financial Ombudsman Service and regulators are swamped by complaints largely from PPI and the high street banks. Will they put my client’s complaint to the top of the pile? Not something regulators/ombudsmen are known for.

It Gets Worse

Payment of pension benefits under the Serious Ill-health Lump-sum payments rules (while the client is alive) is tax-free. Payment of a lump-sum to a widow/surviving spouse is subject to a 55% tax charge.

Pension money recovered: nearly £20,000, pension funds locked up in drawdown: nearly £100,000.

For now, all invoices paid – file closed. The client is on sick leave. Hope they get the complaint form into the FOS in time.

{ 1 comment… read it below or add one }

Leave a Comment

{ 2 trackbacks }

Previous post: