Ombudsman decision – clarifying liability where there are delays in the pension administration process

When delays occur in pension transfers, the implications for members can be significant—but how far does a provider’s responsibility extend? A recent determination by the Pensions Ombudsman in the case of Mr R offers important clarification. Whilst the Ombudsman recognised some administrative shortcomings, the decision reaffirmed that providers are not liable for all financial consequences arising from delays, particularly when those consequences result from a member’s own actions.

Background

The lifetime allowance (LTA), abolished from the 2024/25 tax year, previously set a limit on the amount individuals could save in registered pensions without triggering additional tax charges. Fixed protection, introduced in 2012, allowed savers to preserve the higher LTA of £1.8 million under certain conditions.

Mr R, a deferred member of the JPMC UK Retirement Plan, had a protected LTA of £1.8m. At age 55, in December 2019, he crystallised two pension arrangements, using 7.78% of his allowance. His remaining benefits included:

1. A self-invested personal pension (SIPP) with Interactive Investor (II);
2. Additional voluntary contributions (AVCs) held within the JPMC UK Retirement Plan;
3. Uncrystallised benefits in the JP Morgan UK Pension Plan.

In early 2020, Mr R planned to transfer his AVCs to his SIPP and crystallise the account before the 2019/20 tax year ended. His goal was to withdraw £30,000 in taxable income to take advantage of his lower-rate tax band whilst also maximising his tax-free lump sum.

In February 2020, Mr R submitted the necessary forms to transfer his AVCs into his SIPP. Whilst the transfer value of £411,896 was received by March 2020, the JPMC UK Retirement Plan did not confirm whether the benefits were crystallised — a detail that II required to proceed with Mr R’s drawdown request. This lack of confirmation caused delays, despite Mr R’s repeated efforts to escalate the matter.

The crystallisation status was only confirmed on 5 April 2020, after the tax year had ended. Mr R argued that this delay caused him financial harm, specifically:

1. £27,259 in LTA tax charges, incurred during a later crystallisation event in 2022.
2. £6,000 in additional income tax, resulting from his inability to withdraw funds within his lower-rate tax band in 2019/20.

Mr R attributed these losses to the delay in crystallising his SIPP and sought compensation from both the trustee of the JPMC UK Retirement Plan (which was transferring the AVCs) and II (the plan which received the AVCs).

The Ombudsman’s Findings

The Ombudsman found that II's handling of the crystallisation process amounted to maladministration. Whilst crystallisation details had not been included in the transfer documents, the Ombudsman determined that II should have escalated the issue more effectively and provided clearer guidance to Mr R about the potential implications of the missing information.

However, the Ombudsman limited II's liability, concluding that its duty of care did not extend to all of Mr R's claimed financial losses. The decision drew on the Supreme Court’s decision in Khan v Meadows [2021] UKSC 21, which confirmed that liability is restricted to losses directly connected to the provider’s scope of duty. Whilst II was accountable for delays in crystallising the SIPP, it could not reasonably be held liable for Mr R’s later decision to crystallise another pension arrangement in 2022, which ultimately led to the LTA allowance charge.  The purpose of the transfer of the AVCs at the time of II's maladministration was to minimise income tax, not to minimise tax on a future crystallisation event.

Notably, the Ombudsman highlighted that the delay had a mitigating effect. The value of Mr R's SIPP had increased during the interim, resulting in a higher tax-free lump sum. This, in the Ombudsman's view, offset some of Mr R's claimed losses.

In recognition of the inconvenience caused to Mr R, II had offered him £2,000 and the trustee of the JMC UK Retirement Plan had offered £500. The Ombudsman considered these offers sufficient and did not award further compensation.

Key Takeaway 

Whilst the Ombudsman found that II’s handling of the crystallisation process fell short of expected standards, the ruling reaffirms that liability is not open-ended. Providers are not liable for every financial consequence of a delay, particularly when those consequences are influenced by the member's own subsequent decisions. 

Khan v Meadows remains an important reference point, reinforcing that liability should be limited to losses directly linked to a provider's scope of duty.  Although delays are never ideal, it is not necessarily the case that they automatically result in liability for all subsequent consequences.

For providers, the case highlights the need to manage time-sensitive processes like transfers and benefit crystallisation events with care and to proactively communicate with members about potential impacts of delays or missing information.

To read the decision, please click here.