Scottish Widows Limited · DRN-6174133

The complaint Mr C originally complained, through a solicitor, that Scottish Widows Limited failed to carry out appropriate due diligence before transferring his personal pension to an occupational pension scheme in June 2013. Scottish Widows upheld his complaint and sought to put him in the position he would have been in had this transfer not taken place. That meant reinstating the original policy he had with Scottish Widows. Mr C now complains that that Scottish Widows hasn’t deducted his solicitor’s fees from the sum used to reinstate the policy, and/or treated them as costs and/or consequential loss. What happened Mr C’s original complaint dated 18 July 2022 sought “compensation to return him to the position he would have been in but for said breaches and/or negligence”. It referred to “compensation in excess of £59,637.82”, being the sum originally transferred out of his Scottish Widows policy which was believed to be lost. The complaint made the standard references to a failure to carry out due diligence checks encouraged by The Pensions Regulator (TPR) that we see in complaints of this nature, and concluded: “We recommend you carefully consider the decisions being issued by the Financial Ombudsman Services [sic] in respect of claims of this nature, and the position being taken by the FOS and consider your obligation to treat our client fairly before dismissing this complaint/claim.” I note that there was no separate costs or consequential loss claim, and the solicitor’s letter of authority suggests that any compensation should be paid by cheque directly to them. Scottish Widows upheld Mr C’s complaint on 7 September 2022. It accepted there were warning signs it should have recognised that indicated his transfer request might put him at risk of being scammed. It accepted that if it had warned him, he wouldn’t have transferred his pension. It awarded him £450 for the distress and inconvenience caused and said it was “taking the steps to put your client back in the correct financial position” and referred to “the reinstatement process”. His solicitor contacted our service on 10 October 2022 providing a partially completed complaint form for us to look into this complaint. I will take this as the point of referral, as whilst the complaint form wasn’t yet signed by Mr C, it’s clear from other documents he did sign that the representative was acting with his authority. (The only earlier contact we had from the solicitor was during the eight-week period that Scottish Widows was allowed to have to resolve the complaint before we got involved.) We then asked Scottish Widows for its file, but Mr C’s representative asked us on 20 October 2022 not to investigate for a further 28 days while it conducted further negotiations with Scottish Widows. We said we would take no further action unless the representative contacted us again with a fully completed complaint form. We didn’t hear further from Mr C or his solicitor until a year later (19 October 2023), as explained below.

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In the meantime, the solicitor sought clarification from Scottish Widows that its offer meant reinstating Mr C’s former pension, and whether it could pay the solicitor’s fees out of the reinstated sum. Scottish Widows responded in November 2022 that it wasn’t prepared to pay the solicitor’s fees directly, referring to the approach the Financial Ombudsman Service had previously taken on that point. Mr C’s solicitor promptly disagreed, referring to agreements it had reached with other pension providers to make at least part payment of the compensation in cash to prevent the client suffering financial hardship from fees they were unable to meet from the pension. It argued “your refusal to make a part payment in cash (subject to the required 15% tax) to our client so he can honour our fees and to avoid a breach of contract, is unreasonable. You state that had our client brought the claim direct to you, the complaint would have been upheld in any event however I strongly disagree.” Mr C then contacted Scottish Widows twice in November 2022 expressing urgency about the completion of the reinstatement, which he confirmed he was agreeing to. Scottish Widows told Mr C that the reinstatement had completed as per these discussions on 2 December 2022. On 13 December 2022 Mr C informed his solicitor: “As you are aware I am unable to pay your fee and agree that a complaint be made to Scottish Widows to recover cost incurred in the recovery of my pension. Which became necessary due to there [sic] lack of due diligence. Which they have already agreed. I also reiterate that some time ago I contacted them by phone and discussed my complaint that they were responsible for the transfer of my pension fund to a disreputable pension provider only to be told they disagreed and denied any responsibility despite government guidelines concerning pension transfers. Due to this it became necessary to enlist professional legal representation by yourself. Due to the above I believe that Scottish widows are liable for costs incurred in this process.” On 3 January 2023 Scottish Widows confirmed to Mr C the funds had been transferred to a drawdown product at his request so that he could access funds as he saw fit. His solicitor then approached Scottish Widows asking it to deduct its fees from the reinstated pension “as they would advisor fees or their scheme fees”. I presume this is because despite accessing his pension, Mr C hadn’t paid the solicitor from the amounts he received. As Scottish Widows didn’t alter its position, his solicitor brought a new complaint on 15 May 2023 about “compensation for financial loss and damage arising out of your refusal to settle his legal fees from the compensation awarded”. The complaint said that Mr C was now also dissatisfied as he had no other means from which to settle the solicitor’s bill, which they quantified in July 2023 as £29,048.08 in total. Scottish Widows didn’t agree with the new complaint, referring on 15 August 2023 back to its explanation from October 2022 that it wouldn’t be paying the solicitor’s fees. It said that the issue over the fees was an agreement between Mr C and his solicitor, so this needed to be settled between the two parties. Nor does it appear Scottish Widows considered the complaint warranted fresh referral rights to our service, as it restated the six month period Mr C had to refer the original complaint about the pension transfer to us (which had expired on 7 March 2023). The solicitor brought the new complaint to our service on 19 October 2023, which as I noted above was the first we’d heard from them or Mr C for a year. During that time Scottish Widows had the impression that the Financial Ombudsman Service wasn’t proceeding with the original complaint.

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Although the complaint form was apparently signed by Mr C at this stage, it was provided using a form of encryption that meant we were unable to open it. Our Investigator at that point declined to investigate Mr C’s new complaint anyway, on the basis that as Scottish Widows had already provided our preferred form of redress (which it explained in its letter to the solicitor in November 2022), there wouldn’t be anything further we could do to help. We told the solicitor this when it chased in February 2024, and again in May 2024. When a further approach from Mr C’s solicitor asked if an Ombudsman could determine this matter, it was agreed that we would look at Mr C’s request to have the fees deducted from the new pension Scottish Widows had set up “as they would advisor fees or their scheme fees” on a standalone basis. Mr C signed the complaint form agreeing to this on 9 April 2025, but Scottish Widows has said that it doesn’t consent to us investigating this. Mr C’s solicitor asked him to explain why he’s been unable to pay its fees from withdrawals he’s made (and can make) from his pension funds, as he’s over 55. Mr C said: “As you know prior to receiving the pension funds from Scottish Widows it became necessary for me to give up work and become a full time caregiver for my dying father therefore I had no income at this time. I was unable to work for around 6 years until my father passed away there for I was in a huge amount of debt and the pension fund were used to pay my debts so the small amount left has now dwindled to nothing and I have found a job but the money only covers my and my wife’s living expenses so I can not access money from the pension funds.” Our Investigator reached the following view on the new complaint: • Mr C accepted the reinstatement offer from Scottish Widows and chased for this to happen after Scottish Widows had advised it wouldn’t pay the solicitor directly. • Although he had his reasons for using the amount he withdrew from the pension to meet other debts, it was also the case that he could have chosen to pay the solicitor. • In fact, he told Scottish Widows at the time that he was going to access the pension to pay the solicitor’s fees. • If Mr C doesn’t have any funds left in the Scottish Widows pension, ultimately this was his choice – he did so in the knowledge of his solicitor’s fee. Scottish Widows isn’t responsible for any consequences he faces as a result of this. In summary, Mr C’s solicitor responded as follows on his behalf: • They are no longer contending that their fees should be paid from within the registered pension scheme, given the consequences of this being regarded an unauthorised payment. • However, we haven’t considered whether an award for costs should have been made in accordance with our rules at DISP 3.6.4R in the FCA handbook. • Equally, we haven’t considered whether Mr C has suffered consequential loss - as but for Scottish Widows’ failure of due diligence on the 2013 transfer, he wouldn’t have incurred the solicitor’s fees. • FCA Principles 6 and 7 and its Final Guidance FG21/1 provide guidance for firms on the fair treatment of vulnerable customers. It was objectively foreseeable and reasonable that - absent ringfencing of funds or a direct cash reimbursement to meet the solicitor’s fees - a financially distressed, vulnerable consumer would prioritise pressing debts and household needs, leaving the legal liability to their solicitor unresolved. Scottish Widows failed to take that into account.

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• Scottish Widows knew or ought to have known Mr C had no means to settle his solicitor’s invoice other than from its compensation, and had requested this to happen, yet Scottish Widows failed to take that into account. • Its actions have also put Mr C in a disadvantageous position as he has to withdraw funds from his pension (incurring income tax) in order to pay the solicitor. That added cost should also be neutralised by Scottish Widows outside the pension, so that it doesn’t cause issues with an unauthorised payment. • In addition to seeking their fees as consequential loss, they are also claiming an added amount for distress and inconvenience as a result of Scottish Widows ignoring Mr C’s vulnerability. • A number of points were made whether about the reinstatement already completed complied with the tax rules. As agreement couldn’t be reached, the matter was referred to me for a decision. What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. Given that Scottish Widows has said it doesn’t consent to our investigating this complaint – and referred back to a six-month time limit that had already expired at the time Mr C’s solicitor referred it to us – I need to be clear what complaint our Investigator agreed with Mr C’s solicitor we could consider. It was the somewhat narrow issue of whether Scottish Widows should now comply with (or have already complied with) Mr C and/or his solicitor’s request to deduct their fees from the pension, once reinstated. The reason for this is that during the period of a year where Mr C and his solicitor hadn’t agreed to our service looking into matters, Mr C went to Scottish Widows directly asking it to reinstate his pension – knowing that it wasn’t going to pay the solicitor’s fees beforehand. When Scottish Widows responded to the new complaint on 15 August 2023, it didn’t provide fresh referral rights to this service. So I can see why it hasn’t consented to us looking at it on that basis. However, the reinstated policy didn’t exist at the time of the original complaint, and the new complaint was framed by Mr C’s solicitor as being no different to any request from a professional such as a financial adviser to be paid for its services by direct deduction from the pension funds. So I think this is capable of being considered, albeit somewhat narrowly, as a separate complaint. As Scottish Widows didn’t issue a separate final response to this point, I have the power to look at it now. However Scottish Widows has already set out its interpretation of the tax rules to Mr C’s solicitor. It’s explained why it considers the payment of £29,048.08 directly from the pension once reinstated, for something other than regulated financial advice, would constitute an unauthorised payment with severe tax consequences for Mr C. I note that his solicitor is no longer pursuing this point as a result and I won’t comment on that aspect further. It looks to me that the solicitor’s most recent arguments are using the new complaint Mr C brought to our service as a way of furthering the original dispute about Scottish Widows’ failings in due diligence, and in particular how that complaint was redressed. So I return to the background I’ve already set out above. This was a complaint that looked to have been resolved between the parties (Mr C and Scottish Widows) when he contacted it to accept the reinstatement, knowing that Scottish Widows hadn’t agreed to meet his solicitor’s costs from

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the sum paid. This was why our Investigator originally didn’t agree to reopen Mr C’s original complaint on several occasions. What I must therefore decide here is whether it’s fair and reasonable to reopen the original dispute about how to settle Mr C’s due diligence complaint against Scottish Widows. If I don’t think it is fair and reasonable to do so, I won’t be addressing all his solicitor’s points about how they would prefer that complaint to have been settled in detail. Whilst the Financial Ombudsman Service is prepared to accept a referral of a complaint from a consumer (or their representative) providing the information given at least identifies who the complaint is against and what it is about, we will commonly require further information – including the consumer’s clear consent – to take the matter forward. Where we don’t have that, and there is a considerable delay until we get it, we don’t guarantee to be able to help. Particularly where the delay has been a year, as in this case. In addition, events subsequent to the original referral of the complaint may mean that it’s no longer fair or reasonable for us to get involved in any event. And I think that’s the main problem with what Mr C, through his solicitor, is now asking us to do here. Since originally referring the complaint to us – and after we informed his solicitor that we wouldn’t take any action unless Mr C contacted us again – Mr C approached Scottish Widows himself to accept its offer. That then resulted in reinstatement taking place, despite Mr C being aware that this wouldn’t result in Scottish Widows paying his solicitor’s fees. In my view this is a different scenario to some other complaints we have been prepared to consider where reinstatement is on hold, pending an ongoing dispute between the consumer and the product provider about a representative’s fees. Mr C’s decision to accept what Scottish Widows was proposing to do, in full knowledge that it went against his solicitor’s (and presumably his) preference for fees to be paid out of the compensation, would reasonably have given Scottish Widows the impression that this matter had now been settled. As indeed it would have seemed to our service, had we been updated about this at the time by either party. The extent to which Mr C discussed his course of action with his solicitor at this point isn’t particularly clear, but I’m not persuaded this changes things. Mr C’s and his solicitor’s actions on something as important as whether or not to accept an offer of compensation should reasonably be treated as one and the same. Mr C had employed a professional representative to assist him with a complaint, so the natural course of action someone in that position would take is to discuss accepting the offer with their representative first. I appreciate that Mr C’s solicitor did then promptly raise with Scottish Widows that its fees hadn’t been paid. But it wouldn’t have been fair or reasonable, in my view, for our service as an alternative dispute resolution scheme to then get involved in reopening and mediating matters that had already been settled between Mr C and Scottish Widows. This is typically the conclusion we would reach, providing that it was clear to Mr C what he was accepting at the time, and that the settlement was not materially misrepresented to him by Scottish Widows (for example, by it saying the settlement was what the Financial Ombudsman Service would have recommended, when in fact we would not have recommended it). Firstly, in terms of what Mr C was accepting, I think it’s reasonable to expect Mr C was aware that his solicitor was disputing the mechanism to pay its fees with Scottish Widows since it had made its offer to reinstate his pension. After all it was this that was causing the delay in him being able to access the reinstated funds. Furthermore, when Scottish Widows

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wrote to him on 2 December 2022 confirming the reinstatement, it reiterated what he had told it about wanting access to the funds. It said: “I can confirm that, as you have advised us of a vulnerability, due to your caring responsibilities and your need to pay solicitor fees, and therefore, the need for you to take benefits quickly, we have reinstated the policy value, but we still need you to sign and return the attached Reinstatement Proposal form to us.” So, Scottish Widows would reasonably have known that Mr C needed access to the funds, both to pay his solicitor’s fees and also because of his financial position as a carer. And by that point Scottish Widows had robustly defended its position on not paying the fees out of the compensation before reinstating the pension, and it had good reason to believe the Financial Ombudsman Service wouldn’t expect it to do that. I say this not least because I had issued two decisions involving Scottish Widows and another professional representative back in April 2022 in which I hadn’t agreed with the argument for Scottish Widows to reduce the reinstated policy value by the representative’s fees. This previously involved me considering arguments about the complainant being in a position of financial vulnerability as a result of having to pay their representative’s fees out of the pension. I hadn’t agreed with those arguments at that time because the complainant was above the minimum pension age, and could access their pension to pay the fees. So, Scottish Widows knew all this when seeking to agree a settlement with Mr C. It’s reasonable for me to take that into account because it shows Scottish Widows wasn’t misrepresenting what the Financial Ombudsman Service would likely have done. Understandably, having turned 55 in 2016 but being unable to access his pension until Scottish Widows agreed to reinstate, Mr C was now keen to do so. But the reasons he gave to Scottish Widows did include paying his solicitor’s fees. Scottish Widows was entitled to accept that assertion at face value, given that it had explained that it wouldn’t be paying the fees before reinstating the policy – and this would likely mean that the solicitor would pursue Mr C for the fees instead. In my view the reasons Mr C gave Scottish Widows for wanting to access the policy demonstrate an awareness of his financial obligations to the solicitor. I understand why Mr C’s solicitor thinks the FCA’s guidance on vulnerable consumers is relevant, because Scottish Widows specifically quoted Mr C as having a vulnerability in its letter. However, I don’t think what is fair and reasonable overall all hangs on Scottish Widows particular choice of words here. The solicitor’s arguments in my view misrepresent the situation facing Mr C in November 2022. Mr C’s ability to access his pension – something anyone of his age was entitled to do – was being delayed by his solicitor pursuing a dispute with Scottish Widows that Scottish Widows had good reason to believe wouldn’t be upheld by our service. The continued pursuit of a dispute where the outcome would likely always have been the same – Mr C having to fund his solicitors’ fees by withdrawing from his pension – was in fact exposing Mr C to added vulnerability because of continued lack of access to the funds, which I consider is what Scottish Widows was referring to. I’ve decided that it wouldn’t be fair and reasonable to reopen the original dispute in the particular circumstances here. Scottish Widows explained that it was paying compensation in the way that our service would generally have awarded it. It didn’t mislead Mr C or his solicitor on this being our general approach. Mr C then accepted what Scottish Widows was offering to resolve the complaint, and he did so in an informed position that it would likely mean he had to pay his solicitor’s fees himself.

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It’s theoretically possible that there might be specific, unusual scenarios where we might award redress differently. But in order to find that out it, was for Mr C and his solicitor to agree that they would bring this matter back to our service at the time, rather than Mr C accepting the compensation in the way it was offered. It’s not fair or reasonable for them to now seek to do this after Scottish Widows settled the dispute in the way Mr C agreed. And I have to say that as Mr C was over the minimum pension age there isn’t an obvious reason why we would have agreed to award redress differently in any event. If other compensation schemes the solicitor deals with, such as the FSCS, have chosen to deduct fees from the compensation that isn’t a reason for our approach to be altered. This isn’t a full answer to Mr C’s complaint because I don’t think it’s appropriate for me to consider it in any more detail for the above reasons. It means that I’m not going to consider his solicitor’s arguments that are now re-framed as being for costs or consequential loss, as again these weren’t brought to this service or Scottish Widows before the offer was accepted. But again there is no obvious reason why these would have succeeded. In particular a claim that the solicitor’s involvement was instrumental in Mr C obtaining compensation doesn’t fit with the fact that a consumer is entitled to seek a final response from the respondent, refer it to our service for free and – as noted in the complaint the solicitor did bring to our service – Scottish Widows would be expected to consider the outcome we would reach. Similarly the solicitor’s concerns about the mechanics of the reinstatement and its tax implications would appear to be reopening the basis of the settlement already reached. The Financial Ombudsman Service is not a tax authority and it is for the pension provider to satisfy themselves of the basis on which the policy can be reinstated. Scottish Widows has previously given this service reassurance on its understanding of the tax position. It should not be forgotten that whilst Mr C may have to pay tax on any remaining sums he withdraws from the pension in order to pay his representative, a notional reduction for tax would also have been made if Scottish Widows couldn’t reinstate his policy and instead paid Mr C in cash. And it looks to me that most of the solicitor’s fee could have been met from the tax-free cash Mr C was entitled to from his pension, if he had chosen to do that. My final decision I do not uphold this complaint and make no award. Under the rules of the Financial Ombudsman Service, I’m required to ask Mr C to accept or reject my decision before 1 April 2026. Gideon Moore Ombudsman

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