Aegon Section 32 Buy Out Plan · CAS-32614-N3Z2

CAS-32614-N3Z2

Ombudsman’s Determination Applicant Mr D

Scheme Aegon Section 32 buy-out Plan (the Second Plan)

Respondents Trustees of the Marley Plan Retirement and Death Benefits Scheme Limited (the Trustee) Aegon

Outcome

Complaint summary

Background information, including submissions from the parties and timeline of events The sequence of events is not in dispute, so I have only set out the salient points. I acknowledge there were other exchanges of information between all the parties.

Mr D was employed by Marley Davenport Limited (the Employer).

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Scottish Equitable plc is now trading as Aegon. For ease of reference in the paragraphs that follow, Scottish Equitable plc is referred to as “Aegon” before and after the date it changed its trading name.

Mr D’s nominated retirement date (NRD) under the First Plan was his 65th birthday in June 2019. Monthly pension contributions were paid to the First Plan by both Mr D and the Employer.

• The Individual Trustees established the Second Plan, a Section 32 buy-out policy, with Aegon. Mr D’s benefits in the First Plan were transferred to the Second Plan, at the request of the Individual Trustees. Mercer Jelf Financial Planning (Mercer Jelf), an independent financial adviser, provided advice in connection with the transfer.

• An endorsement to the terms and conditions in respect of the Second Plan came into effect. This allowed for the application of the SMC. An extract from the endorsement can be found in the Appendix.

2 CAS-32614-N3Z2 “Standard Member Charge:

Fund-related Charge: This Charge applies and the rate is as follows:

Percentage: 0.00%.”

“Please see the policy conditions document we sent you when you set up your policy for details of all charges. If you would like a full breakdown of your yearly charges, please contact us.

Your yearly charge is made up of the plan’s annual management charge plus any additional fund management expenses.”

“Please note the policy conditions document we sent you when you set up your policy for details of all charges. If you would like a full breakdown of your yearly charges, please contact us.

Single contributions

Yearly charge 1.00%

Your yearly charge is made up of the plan’s annual management charge plus any additional fund management expenses.”

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• It enclosed a summary of the investment transactions in the Second Plan since its inception together with a factsheet. The factsheet mentioned a total charge of 1% but included the following caveat:

“This includes a standard 1% product charge, a fixed management fee and expenses that vary with the day to day costs of running the fund. You may pay a different product charge.”

• As the Second Plan was proposed by the Individual Trustees, there was no annual policy fee. A fund management charge of 1%, also known as the annual management charge, is deducted from the unit price of each fund. In addition, the SMC of 11.21% of the amount transferred to the Second Plan is deducted annually.

• Mr D was not being charged for transferring his benefits in the First Plan to the Second Plan. The SMC would also apply to the First Plan. This charge came into force when the regular contributions that were being made to the First Plan ceased.

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• Other than the Policy Schedule, which was sent to Mr D’s financial adviser, it held no documents dating back to when the First Plan was set up in 1997 or when the transfer to the Second Plan took place in 2005.

• The Policy Schedule did not show the SMC because this was carried over from the First Plan.

• He assumed at the time that the decrease in the value of the Second Plan was due to poor investment performance.

• He did not have a financial adviser and could only assume that the financial advisers were appointed by the Employer or the Individual Trustees. He did not recall receiving any communications from Mercer Jelf in 2005.

• The first time he saw the Booklet was in September 2019; it did not mention the SMC.

• The charging structure of the First Plan was agreed on the basis that contributions would continue for the full term. The terms of the Second Plan, including the charges, substantially matched those of the First Plan.

• As the First and Second Plan were set up through financial advisers, it would have been their responsibility to make sure that Mr D was aware of the charges involved. It has no record of which party the financial advisers were providing advice to.

• The charges were reasonable. While they were not explained in the annual benefit statements that it sent to Mr D, this was not a regulatory requirement.

• The annual statements showed a reduction in the value of Mr D’s pension pot from year to year, with a corresponding reduction in the number of units. As no contributions were being paid to the Second Plan, and there were no withdrawals, this should have indicated to Mr D that deductions were being made. He could have contacted Aegon to request more information.

5 CAS-32614-N3Z2 • Mr D’s complaint was out of time as more than six years elapsed since he would have reasonably known about the deductions.

• The SMC should have resulted in an additional annual charge of 4.63% from January 2001 to June 2014, in respect of the period of five years prior to Mr D’s NRD. Allowing for the yearly SMC of 1.15%, this gave a total charge of 5.78%.

• It did a comparison between what Mr D should have been charged, had the SMC commenced in January 2001, and what he has actually been charged from 2005. This showed he had been charged an additional £471.88 in error. This was due to the fact that the SMC that was calculated in 2005, was based on a higher surrender value and did not allow for the Grace Period.

• Mr D would not have known that the charges were higher than they should have been. It would refund the amount of £471.88 and was willing to offer him £300, for any distress and inconvenience he suffered.

• It could not say with any certainty whether the First and Second Plans came under its remit. Its name referred to the “Marley Plan Retirement and Death Benefits Scheme” rather than “Marley Davenport”. However, it was willing to assist The Pensions Ombudsman (TPO) with its investigation.

• It did not hold any historic documentation concerning the First or Second Plans, and has only been able to obtain limited information from Aegon. Nor did it hold any information on Mr D, or a record of the information that would have been provided to members of the First and Second Plans at the time.

• SPX checked the files held by its human resources department, dating back over a period of seven years. No information was found on Mr D.

• It wrote to Aegon to obtain additional information in connection with this matter. However, due to Aegon’s data retention policy, it did not hold any further information on either the First or Second Plans.

• While it was no longer in contact with Anthony Reed, it had an ongoing relationship with Mercer Jelf. However, this did not relate to pension matters. Mercer Jelf confirmed that it held no historic information of relevance to Mr D’s case and that any records were likely to have been destroyed.

• It located the contact details for one of the Individual Trustees, Mr Y.

6 CAS-32614-N3Z2 • He joined the Employer in September 1998, as the Finance Director.

• While he recognised the name Mercer Jelf, his recollection was that it was Clark Roxburgh that assisted with the setting up of the Second Plan. He assumed that Clark Roxburgh was taken over shortly afterwards and became Jelf Clark Roxburgh and more latterly Marsh Insurance.

• Communications were issued to members at the time the Second Plan was put in place. He recalled the location where the relevant paperwork was held at the time he left the Employer. However, he suspected that the paperwork may not have been retained.

• The aim of a section 32 policy was to put pension benefits in the name of the member and to remove direct company involvement. Once this has been achieved, he assumed the trustee body was dissolved.

• TPO contacted Marsh Insurance. However, it advised that, due to several changes in ownership, it was unable to locate any records that may have been held by Clark Roxburgh.

• SPX confirmed that it held no relevant paperwork in the location Mr Y had indicated.

Adjudicator’s Opinion

The Adjudicator acknowledged that there was uncertainty over whether the Trustee had any responsibility in relation to the First and Second Plans. Despite TPO’s enquiries, it did not prove possible to obtain information relevant to Mr D’s complaint from the parties that were likely to have been involved at the time. The information provided by Aegon did not provide a full picture. So, the Adjudicator said that it was necessary for him to reach a view, based on the limited information available.

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• The SMC of 11.21%, which Aegon previously referred to as a transfer charge in the May Letter, was never clearly shown on annual benefit statements. The annual benefit statements stated the yearly charge of 1% was “made up of the plans annual management charge PLUS any additional fund management expenses”. They also stated that: “The administration and management cost incurred in running the fund, and the yearly fund management charge made by us, will be paid from the fund”. To the layman, this referred to the overall group fund, and not to an individual’s specific fund. Otherwise, why not state the value of the SMC, other than deception.

9 CAS-32614-N3Z2 • He disagreed with the Adjudicator’s comment that: “on the balance of probabilities Mr D would not have done anything differently if he had been made aware of the SMC before May 2019.” He also provided a copy of a statement of benefits dated 15 December 1998 which showed the fund value as being £2,256.88. He said that any thought of transferring at that point to another arrangement was not in his interest as the transfer value quoted was only £871.39.

• With regard to paragraph 12 above, although Aegon did not provide a copy of the terms and condition for the First Plan, in paragraph 52, the Adjudicator seemed to have accepted paragraph 13 without any evidence. In fact, Aegon did not apply the SMC to the First Plan which supports that the SMC was not clearly notified even to those in charge, if notified at all.

• Regarding Aegon’s comment that he should have been aware of extra charges because the value of his investments was going down, he was always told there was a possibility with defined contribution pensions, that this could occur due to the volatility of investments.

Ombudsman’s decision

I acknowledge the difficulties in coming to a conclusion in relation to Mr D’s complaint given the lack of evidence and the fact that many of the parties involved, including the Individual Trustees, either no longer exist or no longer hold records of the events that occurred. However, I have to make my findings and, where adequate evidence is not available, I will do this on a ‘balance of probabilities’ basis.

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Mr D referred to Aegon’s comment that he should have been aware of extra charges because the value of his investments was going down. I acknowledge Mr D’s response that, due to the volatility of the underlying investments, there was a possibility of his investments decreasing in value. I agree with the Adjudicator’s view that Mr D could only have reasonably been aware that the decrease in the value of his investments was not due to their volatility if he had recognised that the number of units held was decreasing. This would only have been possible if he had compared an annual statement with an earlier one.

I uphold Mr D’s complaint in part.

Directions

Anthony Arter CBE

Deputy Pensions Ombudsman 6 September 2024

11 CAS-32614-N3Z2 Appendix Extract from the endorsement made to condition eight of the Second Plan’s terms and conditions which came into effect from 11 November 2005

“Specific Member Charge

(a) There will be a Specific Member Charge. It will be payable as follows:

(b) In good faith, Scottish Equitable shall calculate the part of the Transfer Value which relates to accumulation units of regular premiums under the Transfer Contract – the ‘Regular Premium Part’. The amount of Specific Member Charge for the Regular Premium Part is the percentage per annum which applied under the Transfer Contract immediately before the payment of the Transfer Value to this Policy, of the Bid Value of the Units derived from the Regular Premium Part.

(c) The amount of Specific Member Charge for the Regular Premium Part will be payable on the day before each anniversary of the Date of Commencement up to the Transfer Pension Date or, if earlier:

(i) the Member’s date of death; or

(ii) the Pension Commencement Date for non-Reserved Units; or

(iii) an earlier date in terms of the Transfer Contract.

(d) The amount of each instalment of Specific Member Charge is collected by cancelling Units derived from the Regular Premium Part at Bid Price.”

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