Francis Clark Financial Planning Limited · DRN-5798873

The complaint Mr C has complained about the advice he received from Francis Clark Financial Planning Limited (“FCFP”) to transfer a defined-benefit (“DB”) occupational pension and Additional Voluntary Contribution pension (“AVC”) to a personal pension. What happened Mr C was a member of DB scheme from 1980 until December 2016 when the terms of the scheme were changed and Mr C became a member of their defined contribution (“DC”) scheme. He also paid into an occupational AVC pension arrangement between 1985 and 2016. In 2017, Mr C sought advice from FCFP on his pension after receiving a Cash Equivalent Transfer Value (“CETV”) for his DB pension. The CETV was £1,270,349. The transfer value of the AVC part of the pension was £94,031. At the time of the advice, Mr C was 55. He was married and had five children – only one of whom was still financially dependent and who was studying at university. He jointly owned his main residence with his wife, which had a value of £750,000. Mr C also jointly owned several Buy-to-Let (“BTL”) properties with his wife with a collective value of £783,000. A client engagement form sets out that the following financial planning priorities were discussed: • To have greater flexibility over accessing and controlling the pension fund; • The ability to retire pre-age 60 with no penalty; • The ability to redistribute assets, so that income could be generated in both Mr C's name and his wife’s (via BTL properties); • To service existing debt and so increase income; • To provide greater protection for Mr C's wife (and ultimately their children) than the 50% spousal pension offered by the DB pension. I’ll detail more about Mr C circumstances and objectives later in the decision. FCFP recommended that Mr C transfer the DB and AVC pension into a Self-Invested Personal Pension (“SIPP”) and take the maximum available amount of tax-free cash (“TFC”) immediately and then take drawdown income flexibly when he needed to in retirement. Mr C accepted the advice and the transfer took place in September 2017. In March 2024, Mr C complained to FCFP about the advice he’d received. He said he’d received unsuitable advice and ought to have delayed any transfer out of his DB pension and continued to accrue deferred benefits. He says any TFC would have been drawn firstly from his AVC, thereby reducing the level of commutation from his DB scheme benefits. He

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would also have been able to make an additional lump sum contribution to his DC scheme from his redundancy payment which he was unable to do as a result of the crystallisation of the new pension arrangement in the SIPP. FCFP didn’t uphold the complaint. It said the advice was suitable as Mr C wanted to retire at age 57 and taking his TFC and flexible drawdown income allowed him to do that and meet his monthly expenditure and pay off his interest-only mortgages. FCFP also said that the complaint had been made too late under the regulatory rules about time limits for referring complaints to our service. One of our Investigators looked at all the evidence. She decided that the complaint had been made within the time limits as she thought that Mr C had referred it within three years of knowing that he had cause for complaint. The Investigator also found the advice FCFP provided to be unsuitable. She recommended that FCFP compensate Mr C for the unsuitable advice in line with the Financial Conduct Authority’s (“FCA) guidance. Mr C accepted the Investigators findings. But FCFP is still of the view that the complaint was made too late and the advice was suitable. It said Mr C's immediate objective of retiring early could only be met by transferring out of the DB scheme. The complaint has therefore been passed to me to decide. What I’ve decided on jurisdiction – and why I’ve looked at all the evidence and I also think this complaint has been in time. The rules about time limits and whether our Service can look into the merits of a complaint are set out in the DISP section of the FCA’s Handbook. DISP 2.8.2R says: “The ombudsman cannot consider a complaint if the complainant refers it to the Financial Ombudsman Service: … (2) more than: (a) six years after the event complained of; or (if later) (b) three years from the date on which the complainant became aware (or ought reasonably to have become aware) that he had cause for complaint unless the complainant referred the complaint to the respondent or to the Ombudsman within that period and has a written acknowledgement or some other record of the complaint having been received;” The advice to Mr C was given in 2017. Mr C complained to FCFP in March 2024. So Mr C has complained more than six years after the events he’s complaining about took place and so his complaint was referred too late under the first limb of the time limit rules above in DISP 2.8.2(2)(a). The issue for me to decide is whether the complaint is also out of time for the purposes of DISP 2.8.2(2)(b) which sets out the three-year rule. So the crucial thing is when Mr C became (or ought reasonably to have become) aware that he had cause for complaint and whether this was more than three years before his complaint in March 2024 (i.e. before March 2021). My view is:

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• I don’t accept FCFP’s view that Mr C ought to have known he had cause for complaint about the suitability of the advice he received at the time of the advice. Mr C was aware of the guaranteed benefits he was giving up. But had he known the advice he was receiving was unsuitable, he wouldn’t have proceeded with it. So, in this case, I don’t think it’s logical to use the date of the advice as a reasonable date by which Mr C ought reasonably to have known he had cause for complaint. • I’m aware that Mr C went through divorce proceedings in 2019 and would have reviewed his finances at that time. But I haven’t seen any compelling evidence that this would have led him to think that the advice he’d received about his DB pension was unsuitable. • I’m persuaded by Mr C's submissions that the first time that he ought reasonably to have questioned the advice was in April 2021 when he found out that he was unable to contribute his redundancy payment to his DC pension as a result of it already having been crystallised when he took the TFC in 2017. As a result, my decision is that Mr C has made his complaint within three years of when he was aware or ought reasonably to have been aware that he had cause for complaint. As such, his complaint has been made within the time limits in DISP. What I’ve decided on the merits – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. I want to make clear that I’ve taken account of the detailed submissions by both parties. But the purpose of my decision isn’t to address every point raised and if I don’t refer to something it isn’t because I’ve ignored it but because I’m satisfied that I don’t need to do so to reach what I think is the right outcome. This simply reflects the informal nature of this service as a free alternative to the courts. I’ve taken into account relevant law and regulations, the regulator’s rules, guidance and standards and codes of practice, and what I consider to have been good industry practice at the time. This includes the Principles for Businesses (“PRIN”) and the Conduct of Business Sourcebook (“COBS”). And where the evidence is incomplete, inconclusive or contradictory, I reach my conclusions on the balance of probabilities – that is, what I think is more likely than not to have happened based on the available evidence and the wider surrounding circumstances. The applicable rules, regulations and requirements The below is not a comprehensive list of the rules and regulations which applied at the time of the advice, but provides useful context for my assessment of FCFP’s actions here. PRIN 6: A firm must pay due regard to the interests of its customers and treat them fairly. PRIN 7: A firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading. COBS 2.1.1R: A firm must act honestly, fairly and professionally in accordance with the best interests of its client (the client's best interests rule).

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The provisions in COBS 9 which deal with the obligations when giving a personal recommendation and assessing suitability. And the provisions in COBS 19 which specifically relate to a DB pension transfer. The FCA states in COBS 19.1.6G that the starting assumption for a transfer from a DB scheme is that it is unsuitable. So, FCFP should have only considered a transfer if it could clearly demonstrate that the transfer was in Mr C's best interests. Having considered all of this and the evidence in this case, I’ve decided to uphold the complaint for largely the same reasons given by the Investigator. These are: • Mr C's DB pension provided a guaranteed, inflation-protected income for life. • A Pension Transfer Analysis (“TVAS”) was produced by a third party with information about the rate of return that would have to be achieved in the SIPP to replicate the benefits of the DB pension. This is known as the critical yield. Using the retirement age of 65 for Mr C the advice report from FCFP said the critical yield was 9.3% if TFC was taken. Mr C had a “high-medium” attitude to risk – he wasn’t prepared to take the kind of risks with his SIPP investments to meet this rate of return. The advice report set out that Mr C's attitude to risk would impact his income in retirement: “Achieving this type of return would require investment into asset backed funds at a higher level of risk than you would appear to be prepared to take in isolation. Even then it is highly unlikely that kind of return would be consistently achievable over an extended period”. And so it was very likely that Mr C would receive pension benefits, from age 65, of a significantly lower value than those he’d have been entitled to from the DB pension. But as I’ll go on to explain below, this measure wasn’t particularly useful in any event given Mr C's actual circumstances and options. • The new SIPP arrangement had ongoing fees and charges, including those of a discretionary fund manager. Furthermore, the advice to transfer the DB pension and take of TFC immediately would mean that Mr C would be impacted by the Lifetime Allowance (“LTA”) at that point. This would be significant in his case – around £90,000. So there was a significant immediate and ongoing cost associated with the new SIPP arrangement that FCFP recommended. • I accept that Mr C was made aware of the lower overall pension income as a result of the transfer and the ongoing costs and charges. However, importantly I think Mr C wasn’t fully informed about the financial implications of the decisions he was making given that FCFP’s advice report provides no detail and analysis about the portion of his pension that he earned before 1 September 2014 that could be taken without any early retirement penalty from December 2021 – when he was 60. Mr C could access almost 94% of his pension at that age without a reduction as the ‘normal pension date’ was 60. I think the omission of any advice about Mr C's pension benefits at age 60 is significant. Mr C was left with the impression from FCFP that he had two options in respect of the DB pension; take his full DB pension benefits at age 65 or at age 57 with his DB benefits significantly reduced. He wasn’t advised about a realistic and viable third option – to take the DB benefits at around the age of 60. The respective

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positions are illustrated by the following taken from the projections* from DB and AVC pension: Age 56 (there was in fact no projection obtained for age 57) £38,135 a year if benefits taken as income only £30,568 a year as income if taken with the total lump sum of £201,421 available Age 60 £49,372 a year if benefits taken as income only £39,690 a year as income if taken with the total lump sum of £260,374 available Age 65 £77,157 a year if benefits taken as income only £56,648 a year as income if taken with the total lump sum of £370,637 available *I know the TVAS report (and consequently the advice report of FCFP) used slightly different figures, but I think it’s reasonable to assess matters using the illustrations from the DB pension provider. So there was a significant financial advantage to Mr C retiring at 60 rather than 57 and retaining his DB pension. • I accept that Mr C aimed to retire at 57 and that this was likely a reason for him seeking advice about his pension and one of the principal considerations for the advice that FCFP gave. But I’m not convinced that it was certain that Mr C would retire at 57. He was 55 at the time of the advice and, in my view, was considering his options about how feasible that would be. I don’t think there’s any compelling evidence that he wanted to retire at 57 at all costs. I think it’s reasonable that he’d base his decision on what was in his long-term financial interests – as advised by FCFP. And of course FCFP’s role wasn’t to facilitate Mr C's aim - it needed to advise Mr C about what was in his best interests and allow him to make a fully informed decision. • Even if Mr C did have an unwavering objective to retire at age 57 (and I don’t think this was the case), I’m not satisfied that Mr C could not afford to do so whilst retaining his DB pension. Mr C has explained that he hadn’t seen the cash flow document that FCFP says it relied on at the time of the advice. I think that’s plausible as it isn’t referred to in the advice report presented to him. Mr C has also pointed out that the cash flow document is premised on the BTL mortgage payments being a household expense thus overstating his outgoings as the rental income from the BTL’s was already recorded as net income. And that this distorts the cash flow analysis. There also appears to be an obvious error in recording the home insurance of £500 as a monthly expense rather than an annual one. So I don’t think the cash flow document provides a reliable or compelling basis for me to decide this complaint. The advice report sets out that Mr C's income requirements in retirement from all sources was £48,000 per year net. And so after the BTL income of £20,000, Mr C required £28,000 net (around £32,125 gross) from his pension income. Given the errors set out above in the cash flow document which likely informed the figure of £48,000, I think this is likely to have been an over-estimate of Mr C's income requirements in retirement.

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Mr C has explained that his outgoings over the three-year period from age 57-60 would likely have meant a total shortfall of around £54,000 which he could have met from funds held in savings and ISAs (£125,000). Again, I think this is plausible. But I don’t rely on the above points from Mr C regarding the cashflow document to uphold the complaint. Even assuming the net pension income requirement figure £28,000 in the advice report was correct, Mr C's income requirements in retirement could have been comfortably met by the DB pension if he took benefits at age 60 – around £34,000 net income per year from the pension after taking a lump sum. It would likely have even been met by the DB pension at age 57 - as the estimate at age 56 shows that he could have taken around £27,000 net income per year after taking a lump sum and this figure would likely be higher at age 57. Overall, based on the evidence I’ve seen, I’m not persuaded that Mr C could only retire at 57 by transferring out of the DB scheme. • I accept that Mr C had significant interest-only mortgage debt related to his BTL properties that was due to be repaid by the time Mr C was aged 65. And transferring his pension to the SIPP was a viable way of raising funds to pay his outstanding mortgage liabilities. However, I’m not persuaded that giving up the guaranteed DB pension was the only way to do this because: o Mr C had surplus income whilst working that he could use to make mortgage over-payments. o Mr C could have made a substantial payment to reduce the mortgage liabilities from the lump sum available from his DB pension at age 60 (£260,374 of which £250,000 would be TFC) or even at age 57 (when at least £201,000 TFC would have been available). o The initial fact-find records show that Mr C had said that the mortgage of £82,000 could be paid off from investment assets at that point. And with regard to the larger mortgage of £408,000 raised to purchase the BTL properties and held against the residential home, Mr C's preference was to pay this off using funds if the pension transfer went ahead at that point but Mr C was willing to: “keep his options open as to how to pay it off: From accumulated excess income over the next 10 years From pension funds From a sale of a buy-to-let property From sale of property an downsizing. [Mr C and his wife] are open to the idea of downsizing” So Mr C was open to other options for paying off his mortgage liabilities. Downsizing in retirement and selling of BTL property in particular appears to have been realistic possibilities to eliminate any remaining mortgage debt after the application of TFC. And Mr C certainly and had no immediate need to pay the mortgages off early – even if the advice report was premised on the fact Mr C had said that paying the mortgages early would give him “peace of mind”. It doesn’t look the above was appropriately considered by FCFP in the context of the valuable DB pension benefits that were being lost as a result of the pension transfer. • FCFP’s advice doesn’t account for the impact of Mr C's contributions to the relatively

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new DC scheme that had been set up for him by his employer. Whilst it would unlikely have been a large fund by the time Mr C retired – the DC fund would have offered Mr C additional options at retirement. • I accept that Mr C is likely to have wanted to take advantage of the CETV that he was given by the DB pension when he sought advice from FCFP in 2017. But I don’t think that ought to have been a significant factor in FCFP’s advice. Changes to the CETV (whether up or down) would have no effect on Mr C's guaranteed benefits available under the DB pension – and I think that the primary focus of FCFP’s advice ought to have been whether Mr C's objectives could be met using the DB pension –not on the value of the CETV available for transfer to the SIPP which could quickly decrease after transfer as result of investment performance. • I also know that Mr C was interested in leaving death benefits for his family that aren’t available in a DB pension. But a pension is primarily designed to provide income in retirement. Mr C was in good health and still needed to draw an income from it for many years to come. I think that ought to have been the focus of FCFP’s advice. Furthermore, the DB pension did have valuable death benefits for Mr C's wife. It would pay a spouse pension of 50%. This was guaranteed and escalating and wasn’t dependent on investment performance or how much was left in the pension when Mr C passed away. FCFP’s advice report did consider a whole of life policy as an alternative for Mr C but discounted it as too costly. However, this was based on a sum assured at an equivalent value to Mr C's DB pension value. I don’t think that was a reasonable way to present the information to Mr C as this essentially assumed he would pass away on day one following the transfer and without any TFC being taken. I don’t think that was reasonable or realistic comparison. I agree with the Investigator that it would have been more appropriate – as a starting point – to discuss with Mr C how much he would ideally like to leave like to leave to his wife and children and this could’ve been explored on a whole of life or term assurance basis, which was likely to be cheaper. So transferring out of the DP pension in order to leave better death benefits to his family wasn’t a compelling reason for FCFP to give the advice it gave. Overall, I can’t see persuasive reasons why it was clearly in Mr C's best interest to give up his DB pension benefits and transfer them to a SIPP, when this would result in lower overall retirement benefits. I don’t think Mr C was determined to retire early at all costs. And I think he had alternative ways of achieving his objective of retiring early, without having to transfer out of the DB pension. I also haven’t seen anything to persuade me that Mr C would’ve insisted on transferring, against advice to remain in the DB pension. So, I’m upholding the complaint as I think the advice Mr C received from FCFP was unsuitable for him. As I’m recommending that FCFP should compensate Mr C by putting him back into the position he would’ve been in if he hadn’t transferred out of the DB pension, I’m not addressing what should have happened after Mr C's pension was transferred.

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Putting things right A fair and reasonable outcome would be for FCFP to put Mr C, as far as possible, into the position he would now be in but for the unsuitable advice. I consider Mr C would have most likely remained in the DB pension and AVC scheme if suitable advice had been given. DB pension FCFP must therefore undertake a redress calculation in line with the rules for calculating redress for non-compliant pension transfer advice, as detailed in policy statement PS22/13 and set out in the Regulator’s handbook in DISP App 4: https://www.handbook.fca.org.uk/handbook/DISP/App/4/?view=chapter. Mr C retired at age 60 and started taking pension income from the SIPP at that point. I haven’t seen persuasive evidence that allows to me to fairly and reasonably conclude that he would have delayed taking his DB pension benefits beyond then. Given everything I’ve said above and age 60 being the normal pension date for the majority of Mr C's DB pension, I think that is a fair date by which compensation should be calculated. This calculation should be carried out using the most recent financial assumptions in line with PS22/13 and DISP App 4. In accordance with the Regulator’s expectations, this should be undertaken or submitted to an appropriate provider promptly following receipt of notification of Mr C's acceptance of the decision. If the redress calculation demonstrates a loss, as explained in policy statement PS22/13 and set out in DISP App 4, FCFP should: • calculate and offer Mr C redress as a cash lump sum payment, • explain to Mr C before starting the redress calculation that: - his redress will be calculated on the basis that it will be invested prudently (in line with the cautious investment return assumption used in the calculation), and - a straightforward way to invest his redress prudently is to use it to augment his defined contribution pension. • offer to calculate how much of any redress Mr C receives could be augmented rather than receiving it all as a cash lump sum, • if Mr C accepts FCFP’s offer to calculate how much of his redress could be augmented, request the necessary information and not charge Mr C for the calculation, even if he ultimately decides not to have any of his redress augmented, and • take a prudent approach when calculating how much redress could be augmented, given the inherent uncertainty around Mr C's end of year tax position. Redress paid directly to Mr C as a cash lump sum in respect of a future loss includes compensation in respect of benefits that would otherwise have provided a taxable income. So, in line with DISP App 4.3.31G(3), FCFP may make a notional deduction to allow for income tax that would otherwise have been paid. Mr C's likely income tax rate in retirement is presumed to be 20%.

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I think this is a reasonable conclusion about his income tax rate. Mr C is currently a basic rate tax payer in retirement and is taking £30,000 gross from his drawdown pension and has BTL gross income of around £15,000. At age 67, his state pension will be around £9,600 (it was £6,032 in 2017 but it will have increased since then because of the triple lock guarantee). So I acknowledge that these sums would take him into the 40% tax bracket. However, I accept that Mr C may need to reduce his drawdown income after he takes the state pension in order to preserve his fund (as was the plan in the original advice report and what I understand to still be Mr C's intention). And of course the funds available to him to draw down will depend on fund performance. It’s possible that, after a loss calculation, compensation is payable as a result of this complaint and Mr C will have further funds available to him in retirement. But I don’t know how much that compensation will be. So, overall, I think it’s fair and reasonable to proceed on the basis that Mr C will remain a basic 20% tax payer. In line with DISP App 4.3.31G(1) this notional reduction may not be applied to any element of lost tax-free cash. AVC pension I understand that the AVC loss will be included in the calculations directed in DISP APP 4 relating to the DB scheme. And if that is the case, that methodology should be used to calculate any loss from the AVC pension and the following provisions shall not apply. However, only if this is not the case (i.e. it isn’t provided for in the DISP APP 4 calculations), I think it would be fair (and practical) to calculate any loss from the AVC pension as if it had been invested in a proportionate way to the DB pension. To do this, FCFP should work out the likely value of Mr C's AVC pension as at the date of this decision, had he left it where it was instead of transferring to the SIPP. FCFP should ask Mr C's former pension provider to calculate the current notional transfer value of the AVC pension had he not transferred his pension. If there are any difficulties in obtaining a notional valuation, then a comparison with the FTSE UK Private Investors Income Total Return Index should be used to calculate the value. That is likely to be a reasonable proxy for the type of return that could have been achieved if the pension hadn’t been transferred. The notional transfer value should be compared to the proportion of the transfer value of the SIPP that relates to this pension as at the date of this decision. If there is a loss, then compensation is payable to Mr C. Any additional sum that Mr C paid into the SIPP should be proportionally added to the notional transfer value calculation at the point it was actually paid in. Any withdrawal, income or other distributions paid out of the SIPP should be proportionally deducted proportionately from the fair value calculation at the point it was actually paid so it ceases to accrue any return in the calculation from that point on. If there is a large number of regular payments, to keep calculations simpler, I’ll accept if FCFP totals all those payments and deducts the proportion of that figure at the end.

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If there is a loss, this is the compensation payable by FCFP for this part of Mr C's pension. Since the loss Mr C has suffered is within his pension, it’s right that I try to restore the value of his pension provision if that’s possible. So, if possible, the compensation for the loss should be paid into Mr C's pension plan. The compensation shouldn’t be paid into the pension plan if it would conflict with any existing protection or allowance. Payment into the pension should allow for the effect of charges and any available tax relief. This may mean the compensation should be increased to cover the charges and reduced to notionally allow for the income tax relief Mr C could claim. The notional allowance should be calculated using Mr C's marginal rate of tax – which as I’ve set out above I think should be 20%. If a payment into the pension isn’t possible or has protection or allowance implications, it should be paid directly to Mr C as a lump sum after making a notional deduction to allow for income tax that would otherwise have been paid. Typically, 25% of the loss could have been taken as tax-free cash and 75% would have been taxed according to his likely income tax rate in retirement – presumed to be 20%. So, making a notional deduction of 15% overall from the loss adequately reflects this. The loss for the AVC pension suffered can likely be calculated quicker than the loss for the DB pension above. And DISP APP 4 deals comprehensively with how redress is to be quantified when calculating that loss. In the circumstances, (and only if the AVC pension isn’t included within DISP APP 4) I think it’s fair and reasonable that FCFP should pay Mr C the compensation arising from any loss from the AVC pension within 28 days of Mr C's acceptance of my final decision. If it doesn’t do so, interest is payable on the loss at 8% simple per year from the date that FCFP is notified of Mr C's acceptance of the decision to the date of payment. Distress and inconvenience I think it’s clear from Mr C's submissions to this service that FCFP’s unsuitable advice has caused him some stress and disappointment. This is at a time when he should be enjoying retirement. On that basis, I think FCFP should pay Mr C £200 compensation for the distress and inconvenience he’s experienced. My final decision I uphold this complaint. Where I uphold a complaint, I can award fair compensation of up to £195,000, plus any interest and/or costs that I consider are appropriate. Where I consider that fair compensation requires payment of an amount that might exceed £195,000, I may recommend that the business pays the balance. Determination and money award: I require Francis Clark Financial Planning Limited to pay Mr C the compensation amount as set out in the steps above, up to a maximum of £195,000. Recommendation: If the compensation amount exceeds £195,000, I also recommend that Francis Clark Financial Planning Limited pays Mr C the balance. If Mr C accepts my decision, the money award is binding on Francis Clark Financial Planning Limited. My recommendation is not binding on Francis Clark Financial Planning Limited. Further, it’s unlikely that Mr C can accept my decision and go to court to ask for the balance. Mr C may want to consider getting independent legal advice before deciding whether to accept this decision.

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Under the rules of the Financial Ombudsman Service, I’m required to ask Mr C to accept or reject my decision before 7 April 2026. Abdul Hafez Ombudsman

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