Novia Sipp · CAS-32185-X8P1

CAS-32185-X8P1

Ombudsman’s Determination

Applicant Miss E

Scheme Novia SIPP (the SIPP)

Respondents Novia Financial plc (Novia)

Outcome

Complaint summary

Background information, including submissions from the parties

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Adjudicator’s Opinion

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Miss E did not accept the Adjudicator’s Opinion and the complaint was passed to me to consider. Miss E and Novia have provided their further comments which do not change the outcome. I agree with the Adjudicator’s Opinion and note the additional points raised.

Miss E’s further comments are as follows:-

• All five of the bonds into which she had invested were now past their maturity date, with no return of investment as yet. This indicates that the bonds must be in default, and therefore in distress.

• At least two of the bonds had been valued at zero by the Financial Services Compensation Scheme (FSCS) in August 2020.

• Novia’s refusal to allow the transfer out of the SIPP was against her human rights, in accordance with The Human Rights Act 1998 Part II The First Protocol, Article 1, Protection of Property, on the basis that “every natural or legal person is entitled to the peaceful enjoyment of his possessions”.

• What consideration for the Human Rights Act had Novia made before allowing her to invest in such funds, where to do so would later breach her human rights?

• The Human Rights Act applies in this case because Novia carries out a public function by collecting tax relief on behalf of HMRC. While investing in bonds is a private function, such an investment cannot be made without the public function being carried out by the product provider, Novia. She believes the private and public functions go together hand in hand; one cannot be done without the other.

• As a result of Novia’s lack of consideration for her human rights when deciding what investments were allowed on its platform, Novia had breached her human rights of peaceful possession of her property.

• On this basis, any tax charge arising from a transfer of her funds out of the SIPP should be borne by Novia as she was only in this position due to Novia’s negligent failure to consider her human rights before permitting the investment in non- transferrable bonds to be held within the SIPP.

4 CAS-32185-X8P1 • Novia had sent her mixed messages. In previous communications, Novia had stated that she may also wish to transfer her existing Novia account to another provider. However, when she attempted to do so, Novia refused to permit the transfer. Misleading statements were a violation of the Financial Conduct Authority’s (FCA) Conduct of Business Rules (COBS) under which regulated firms such as Novia must operate. Specifically, COBS 4.2.1R1 which states that a firm must ensure it communicates in a fair, clear and not misleading manner. Novia had a legal obligation to follow this COBS rule.

• In December 2019 it was reported to Novia that one of the directors of all six bonds was also the founding director of the investment adviser. This was clearly a conflict of interest. However, Novia had ignored this information, thus breaching the FCA’s Principles for Businesses (PRIN) numbers 1, 2 and 6, which state a firm must conduct its business with integrity, with due skill care and diligence, pay due regard to the interests of its customers, and treat them fairly.

• In respect of The Personal Pension Schemes (Restriction on Discretion to Approve) (Permitted Investments) Regulations 2001, a statutory instrument, she could see nowhere in the list of permitted SIPP investments (the List) any non- transferrable corporate bonds. If Novia had considered the List, her investments would not have been accepted for holding within her SIPP.

• A consideration of all of the above should result in her complaint being upheld.

Novia’s further comments are as follows:-

• Investments held within any pension are not the personal possessions of the SIPP holder but rather the SIPP provider is the legal and beneficial owner. Therefore, Miss E holds only a beneficial interest in the funds within the SIPP. As such, Novia believes the Human Rights Act does not apply.

• Miss E’s current situation is not the fault of Novia but has been caused by her financial adviser, who recommended the pension transfer from the previous provider into the Novia SIPP. That adviser recommended the investments. Further, he knew that some of them were illiquid at the time he recommended the commencement of drawdown to Miss E.

• In respect of the alleged breaches of COBS rules, it apologises for any impression of inconsistent messaging given in correspondence with Miss E. Novia said it was designed to work with FCA-authorised advisers rather than directly with SIPP holders. When there is no longer an adviser of record, it is in the best interests of SIPP holders to engage a new adviser or alternatively to transfer the SIPP to a provider that is better suited to dealing directly with customers. Novia was merely reminding Miss E of her options in this respect.

• The investments held by Miss E were available to all financial advisory firms, and any specific conflicts of interest in this respect would be a matter for disclosing or managing by Miss E’s financial adviser. Such a conflict of interest would not, of 5 CAS-32185-X8P1 itself, mean that an investment could not be made available to a wider range of customers and financial advisory firms.

• Novia was satisfied that it had fulfilled its duty of care to Ms E and was not acting for its own benefit in relation to the investments held in the SIPP.

• In respect of the claim regarding the List of investments that may be held in a SIPP, it believed Miss E was referring to obsolete legislation.

Ombudsman’s decision

“The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contribution penalties.”

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Anthony Arter

Pensions Ombudsman 3 November 2020

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The Pension Schemes Act 1993 Part 1 Preliminary

1. Categories of pension schemes “In this Act, unless the context otherwise requires:- “occupational pension scheme” means any scheme or arrangement which is comprised in one or more instruments or agreements, and which has, or is capable of having, effect in relation to one or more descriptions or categories of employments so as to provide benefits, in the form of pensions or otherwise, payable on termination of service or on death or retirement, to or in respect of earners with qualifying service in an employment of any such description or category. “personal pension scheme” means any scheme or arrangement which is comprised in one or more instruments or agreements and which has, or is capable of having, effect so as to provide benefits, in the form of pensions or otherwise, payable on death or retirement to or in respect of employed earner who have made arrangements with the trustees or managers of the scheme for them to become members of it.”

8 CAS-32185-X8P1 The Pension Schemes Act 1993 Part IV, Chapter IV, Section 94: Right to cash equivalent

1. “Subject to the following provisions of this Chapter:- a) a member of an occupational pension scheme acquires a right, when his pensionable service terminates, to the cash equivalent at the relevant date of any benefits which have accrued to or in respect of him under the applicable rules; and b) a member of a personal pension scheme acquires a right to the cash equivalent at the relevant date of any benefits which have accrued to or in respect of him under the rules of the scheme.”

2. “In this section the applicable rules” means:- a) any provision which the rules of the scheme do not contain but which a scheme must contain if it is to conform with the requirements of Chapter I; and b) the rules of the scheme, except so far as Chapter II or III overrides them; and c) any provision of Chapter II or III which overrides any of the rules of the scheme; “the relevant date” means, subject to regulations under section 98(4):-

a) the date of the relevant application, or b) in the case of an occupational pension scheme, if it is later, the termination date;

“the relevant application” means any application which the member has made under section 95 and not withdrawn.”

9 CAS-32185-X8P1 Section 95: Ways of taking right to cash equivalent 1. “A member of an occupational pension scheme or a personal pension scheme who acquires a right to a cash equivalent under this Chapter may only take it by making an application in writing to the trustees or managers of the scheme requiring them to use the cash equivalent to which he has acquired a right in whichever of the ways specified in subsection 2. or, as the case may be, subsection 3. he chooses. 2. In the case of a member of an occupational pension scheme, the ways referred to in subsection 1. are:- a) for acquiring transfer credits allowed under the rules of another occupational pension scheme:- (i) the trustees or managers of which are able and willing to accept payment in respect of the member’s accrued rights, and (ii) which satisfies prescribed requirements. b) for acquiring rights allowed under the rules of a personal pension scheme:- (i) the trustees or managers of which are able and willing to accept payment in respect of the member’s accrued rights, and (ii) which satisfies prescribed requirements. c) for purchasing from one or more insurance companies such as are mentioned in section 19(4)(a), chosen by the member and willing to accept payment on account of the member from the trustees or managers, one or more annuities which satisfy prescribed requirements. d) for subscribing to other pension arrangements which satisfy prescribed requirements. 3. In the case of a member of a personal pension scheme, the ways referred to in subsection 1. are:- a) for acquiring transfer credits allowed under the rules of an occupational pension scheme:- (i) the trustees or managers of which are able and willing to accept payment in respect of the member’s accrued rights, and (ii) which satisfies prescribed requirements; b) for acquiring rights allowed under the rules of another personal pension scheme:- (i) the trustees or managers of which are able and willing to accept payment in respect of the member’s accrued rights, and (ii) which satisfies prescribed requirements; c) for subscribing to other pension arrangements which satisfy prescribed requirements. 4. In the case of the exercise of a right in respect of the cash equivalent of a member’s protected rights, if any, under a scheme which is, or was formerly, a money purchase contracted-out scheme, subsection 2. is to be construed as if paragraph c) were omitted. 5. Except in such circumstances as may be prescribed:- 10 CAS-32185-X8P1 a) subsection 2. is to be construed as if paragraph (d) were omitted; and b) subsection 3. is to be construed as if paragraph (c) were omitted. 6. Without prejudice to the generality of subsections 2. and 3., the powers conferred by those subsections include power to provide that a scheme or pension arrangement or, in the case of subsection 2., an annuity must satisfy requirements of the Inland Revenue. 7. A member of an occupational pension scheme may only exercise the right conferred by this section on or before the last option date. 8. In subsection 7. “the last option date” means, subject to regulations under section 98, the date which falls:- a) one year before the date on which the member attains normal pension age; or b) six months after the termination date, whichever is the later. 9. An application to the trustees or managers of the scheme under subsection 1. is to be taken to have been made if it is delivered to them personally, or sent by post in a registered letter or by the recorded delivery service.

11 CAS-32185-X8P1 Section 96: Further provisions concerning exercise of option under S.95 1. A member may exercise the option conferred by subsection (1) of section 95 in different ways in relation to different portions of his cash equivalent, but a member who exercises that option must do so:- a) in relation to the whole of his cash equivalent; or b) if subsection (2) applies, in relation to the whole of the balance mentioned in subsection 3. 2. This subsection applies where:- a) the trustees or managers:- (i) of an occupational pension scheme which is not a contracted- out scheme, or (ii) of a personal pension scheme which is not an appropriate scheme, or (iii) of a self-employed pension arrangement, are able or willing to accept a transfer payment only in respect of a member’s rights other than his accrued rights to guaranteed minimum pensions or his protected rights; and b) the member has not required the trustees or managers of the scheme from which he is being transferred to use the portion of his cash equivalent which represents those accrued or protected rights in any of the ways specified in subsection 2. or, as the case may be, subsection 3. of section 95. 3. Where subsection 2. applies, this section and sections 94, 95 and 97 are to be construed as conferring on the member an option only in respect of the balance of the cash equivalent to which the member would otherwise be entitled, after deduction of an amount sufficient for the trustees or managers of the scheme from which he is being transferred to meet their liability:- a) in the case of a transfer from an occupational pension scheme, in respect of the member’s and the member’s widow’s or, as the case may be, widower’s guaranteed minimum pensions or the member’s protected rights; and b) in the case of a transfer from a personal pension scheme, of the member’s protected rights.”

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