![]() |
[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback] | |
England and Wales High Court (Administrative Court) Decisions |
||
You are here: BAILII >> Databases >> England and Wales High Court (Administrative Court) Decisions >> Green, R (on the application of) v Gillian & Edward Gunner [2012] EWHC 1253 (Admin) (18 May 2012) URL: http://www.bailii.org/ew/cases/EWHC/Admin/2012/1253.html Cite as: [2012] EWHC 1253 (Admin) |
[New search] [Printable RTF version] [Help]
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
Strand, London, WC2A 2LL |
||
B e f o r e :
____________________
The Queen on the application of Kenneth Green |
Claimant |
|
- and - |
||
The Financial Ombudsman Service Ltd |
Defendant |
|
-and- |
||
Gillian & Edward Gunner |
Interested Party |
____________________
Mr Jonathan Moffett (instructed by the Financial Ombudsman Service) for the Defendant
Hearing date: 20 March 2012
____________________
FOR HANDING DOWN
(SUBJECT TO EDITORIAL CORRECTIONS)
Crown Copyright ©
Mr Justice Collins :
"This Part provides for a scheme under which certain disputes may be resolved quickly and with minimum formality by an independent person."
The defendant is that independent person and he can only entertain complaints from individuals or small businesses and his power to award compensation is subject to an upper limit, the amount of which is not material for the purposes of this case.
"(1) The Ombudsman will determine a complaint by reference to what is, in his opinion, fair and reasonable in all the circumstances of the case.
(2) In considering what is fair and reasonable in all the circumstances of the case, the Ombudsman will take into account relevant law, regulations, regulators' rules and guidance and standards, relevant codes of practice and, where appropriate, what he considers to have been good industry practice at the relevant time."
"Essentially our role is to consider whether your firm complied with its legal and regulatory obligations when advising Mr & Mrs Gunner to take their pension income in conjunction with income drawdown arrangements, rather than purchase annuities. Our role is not to satisfy ourselves whether Mr & Mrs Gunner were told about, and properly understood, all of the relevant risks and I do not believe that the outcomes of their complaints will turn on whether that was the case or otherwise."
"I stressed that with income drawdown I would normally invest at least the equivalent of the first year's income in a "Cautious" fund. This would allow the higher risk funds to grow without any income being initially drawn from them. Because of the flexibility of choice of funds the risk profile could be changed at any time. Also an annuity could be purchased at any time too (e.g.: if suffered from ill health then a better rate could be available at that time).
Gillian said their basic objective was to be able to retire comfortably with the maximum tax-free cash and maximum possible income. She will continue working part-time. They would invest the tax-free cash themselves as they had already done very well in PEPs and high tech stocks. Gillian particularly liked the idea of the flexible death benefits under the income drawdown. She also liked the flexibility of changing the fund choice and risk profile.
I stressed that the most important factor with drawdown was the investment performance. With 9% pa tax-favoured growth and reasonably stable GAD rates, the income could increase every 3 years. Lower investment growth could mean the exact opposite, especially if they were taking the maximum level of income from their funds. This did not seem to bother her. Gillian was very positive about the future investment growth and she like the idea of being able to influence the choice of investment funds and managers. Pension fund performance had been good in the last 5 years. Some funds had enjoyed in excess of 12% tax-favoured growth per annum. However, I repeated my point that it may not be a good idea to take the maximum income from the start. "
"This level of income should increase every three years as illustrated in the report e.g. by the beginning of year 4 it could be £15,551, assuming tax favoured growth of only 9% p.a."
He also said that if partial retirement was under consideration then a lower amount of tax free cash and income could be chosen initially. Mr Moffett has emphasised the inclusion of the adjective 'only' in the reference to 9% growth. As will be seen, it is, he says, consistent with the advice given that indicated that 9% growth was likely to result and there was no real risk that it would not.
"As far as investment performance is concerned, while past performance is no certain guarantee to future performance, most leading pension insurance have comfortably exceeded 9 % per annum tax favoured growth."
In setting out the advantages of income drawdown, it was said that:-
"The income withdrawal limits are tested every three years. Provided the appropriate tax free growth is achieved this can mean increased income being available as well as increased value in the underlying fund."
There is a manuscript note on the copy of the report in the bundle before me which indicates as I understand it that Mrs Gunner was informed that illustrations using 5% and 7% would be available and that 9% was the maximum permitted by the regulator. However, there is nothing in the reports to suggest that there was any real risk that 9% might not be achievable.
"2. You have quoted an assumed growth rate of 9% for the purpose of forecasting the figures. Is this 9% based on the record of the proposed managers of the fund? If the performance of the company managing the fund were to go below this figure, would we have the flexibility of transferring it somewhere else?
3. If the investments yielded more or less than 9%, presumably our fund and pensions would vary in direct proportion to the actual yield. What would be the best and worst case scenario if (say) there were another stock market boom, or another recession?"
"2. The assumed growth tax favoured rate of 9% per annum is the maximum rate permitted by the Regulator. While past performance is no certain guide to future performance all of the insurers illustrated have produced growth rates of higher than 9% per annum. If the fund is underperforming you would have a choice of switching funds. As stated earlier this choice varies between insurers. While the funds would remain within the chosen Personal Pension Income Plan it is possible to invest outside of that Insurer if desired.
3. The initial income is based on the size of the initial fund, the tax free cash taken and the prevailing Government Actuaries Department (GAD) rates. The initial income levels are set for three years. They are then tested every three years. Provided that 9% per annum tax favoured growth, or more, is achieved, and the GAD rates remain reasonably stable your income should increase over the years. It is worth noting that recovering from the 1987 stock market crash took about 1 ½ years. Also it is interesting to note that the BZW Equity Gilt study shows that between 1919 and 1992 equity returns averaged 14.51% p.a. (10.02% real return). Between 1946 and 1992 equity returns averaged 16.41 p.a. (real return 9.29%). When inflation was less than 6% real returns were in excess of 10%.
During any three year period you can vary the income to any amount between the Maximum and Minimum levels permitted. You should also remember that your funds can be chosen to reflect your chosen risk profile. You can also switch investments at any time. "
Nothing is said to suggest that there was any risk of 9% not being achieved. Figures were given for 7% and 5% and these showed that a diminution of income and of the fund would occur after the third year and would thereafter show a continuing diminution.
"The risk factors which need to be taken into account include the fact that-
- High income withdrawals may not be sustainable during the deferral period.
- Taking withdrawals may erode the capital value of the fund, especially if investment returns are poor and a high level of income is being taken. This could result in a lesser income when the annuity is eventually purchased.
- The investment returns may be less than those shown in the illustrations.
- Annuity rates may be at a worse level when purchase annuity takes place. "
It is to be noted that in answering the concerns of Mrs Gunner, the claimant had made the point that the last recession had only lasted for 1 ½ years. If that was intended to suggest that even if a recession occurred it would not have an overall damaging effect since history showed that the recovery brought returns up to their previous levels, it was misleading because it could mean, as happened, that at the end of the 3 year initial period there was a loss which then could not be overcome without a better than 9% return thereafter. The Gunners were never explicitly warned of the effect of such a recession within the initial 3 year period or any such period thereafter.
"87. … For the avoidance of doubt, I accept that Mrs Gunner knew that starting to take her pension income in 1999 using an income drawdown arrangement exposed her to the risk that her future pension income could fall. However I am not satisfied that she understood either the true nature of that risk, which was materially heightened by starting to draw the maximum allowable pension income, or the extent to which her future pension income could potentially fall.
88. The evidence that I consider provides me with the best indication of Mr and Mrs Gunner's true intentions in 1999 is contained in the written correspondence and particularly the letter to Mrs Gunner of 6 August 1999 and in the accompanying report. In my judgment the statements contained in those documents were misleading. The statements underplayed the risk involved by referring to the likely increase in her pension income after three years if a growth rate of 9% p.a. was achieved, which was the highest rate that could have been used to illustrate prospective future benefits. I referred to this in my first provisional decision as reminding me of one of the tests set out by the PIA for the review of past pension sales. I also consider that following the PIA's regulatory update 62 issued in January 1999 that the regulator expected lower interest rates, lower investment returns and increasing longevity. These factors all lead me to conclude that there was a significant prospect that Mrs Gunner's income would actually fall.
89. In her letter to KWG dated 2 September 1999, Mrs Gunner asked 'What would be the best and worst case scenarios if (say) there were another stock market boom, or another recession'." Although KWG said he could not give a worse case scenario, at least in terms of giving projections of future benefits using growth rates of less than 5% p.a., that did not prevent KWG from saying, words to the effect that, 'if everything works against you, your future pension income could be substantially and permanently reduced, and from as early as three years after starting income drawdown.'
90. AKCG also argued on many occasions that Mrs Gunner did not intend to retire and has provided a significant amount of evidence about the business ventures set up by both Mr and Mrs Gunner. He has also argued that they intended to continue with the established business. I am not persuaded by these arguments. It is clear to me that Mr and Mrs Gunner intended to retire in 1999. The evidence provided about their earnings after they started to draw their pension benefits supports this conclusion. Mr and Mrs Gunner's explanations about the income produced are in my view credible and I do not consider that they intended to rely upon any earnings from the internet ventures. It may well be that some income has been generated from these businesses, but I am satisfied that they intended to rely upon the income from the pension funds for their basic living expenses.
91. Green Denman has made much of Mrs Gunner's decision to waive her cancellation rights in order to obtain the tax free cash lump sum as quickly as possible. AKCG said that Mrs Gunner was an insistent investor and this demonstrates she had an overriding desire to obtain the tax free cash lump sum regardless of what she did with the rest of her pension fund(s). I do not place much weight on that argument. It is understandable that, having decided to start taking her pension income, and having also decided to take as much as possible of her pension savings as a tax free cash lump sum, she would want that tax free cash lump sum as soon as possible if only to reinvest it. However, and according to the figures shown in the September 1999 report, that decision was based on her having to use over 85% of her pension fund(s) to provide her with regular pension income. None of the evidence and none of Green Denman's arguments persuade me that Mrs Gunner would knowingly have exposed her future pension income to the substantial risks inherent in taking the maximum allowable pension income from an income drawdown plan just to obtain the illustrated tax free cash lump sum of £14,084.
92. I am satisfied that Mr and Mrs Gunner approached Green Denman for advice about the options available to them. If Mrs Gunner had not been misled by KWG's letter dated 2 September 1999, and if she had been told, at least in generic terms, that her future pension income could be substantially and permanently reduced after only three years, I am satisfied that, on the balance of probabilities, she would not have bought her income drawdown plan and/or started taking the maximum allowable pension income from such an arrangement in 1999."
"If Mr and Mrs Gunner had not been misled, I consider that they would have continued working and reviewed the position in October 2003 when Mrs Gunner was 60. I am satisfied that the pension funds would have provided sufficient income for them to retire at that time."