The Financial Ombudsman Service has ordered Succession Wealth to pay £500 compensation to a client after a complaint against it was upheld finding that incorrect pension advice caused ‘considerable distress, upset and worry'.
The case centred on advice given to Mrs G following the death of her husband, after she inherited a dependent's pension.
In the 2024 Autumn Budget, the government announced proposals to bring unused pension funds into a pension holder's estate for inheritance tax (IHT) purposes from 2027. Concerned about the implications for her children, Mrs G contacted her adviser to ask whether she could gift money from her pension before reaching the age of 75.
According to the FOS' decision, Mrs G asked whether she could give "some of the pension to the kids before I'm 75….and as long as I live for another seven years I assume that means they don't pay tax?"
Her adviser replied: "You can take any money from your pension and there is no tax to pay. There is no tax for the children receiving the money either."
IHT changes and gifting rules
The adviser also explained that any gifts would fall under the "normal seven-year rule" for IHT purposes and suggested that they would "probably recommend taking all the money before Mrs G is 75".
Relying on this advice, Mrs G arranged withdrawals and informed her children that gifts would be made over the Christmas period. However, when the funds did not arrive, Succession Wealth later informed her that the advice had been incorrect.
The firm discovered that withdrawals had previously been made from the pension before 2015, meaning future withdrawals would in fact be taxable. The payments were halted and Mrs G was informed of the revised tax position around a month after her initial enquiry.
The ombudsman found that Succession Wealth should have checked the pension history before advising that withdrawals would be tax free.
"There's no dispute about what the adviser told Mrs G in November 2024 – and this turned out to be incorrect based on her pension situation," the decision stated.
The FOS rejected Succession Wealth's argument that the adviser had relied on information available at the time, finding instead that the adviser should have confirmed the pension's withdrawal history before giving definitive advice.
"I don't think it was unreasonable for Mrs G to assume that her adviser would be aware of all the circumstances around her pension plan history," the ombudsman wrote, adding that "at the very least it should have asked her for any further information which might be required in order to make the correct recommendation".
Incorrect advice raising family expectations
Mrs G later explained that the incorrect advice had raised expectations within her family and caused embarrassment and emotional strain after she had already promised the money to her children.
The ombudsman acknowledged the impact this had caused, writing: "I think she would have been disappointed and also upset about not receiving the tax free funds when she had expected them.
"But more importantly I think this would have caused her some embarrassment with her children which was a result of actions she took following advice from Succession Wealth."
In early 2025, Succession Wealth met with Mrs G and her children to discuss alternative ways to proceed with the gifting plan. The adviser presented three possible strategies, including withdrawing additional funds from the pension to cover the resulting tax liability.
Mrs G ultimately chose to proceed with withdrawals from the pension despite the tax implications. She later complained that she had felt pressured into continuing because she did not want to disappoint her children after already promising them the gifts.
However, the ombudsman concluded that the later advice provided by Succession Wealth was suitable and that the firm had clearly explained the tax implications at that stage.
"The first noted point around the recommendation set out the amount of lump sum to be released and stated ‘this will be taxed at your marginal rate,'" the decision noted.
Later recommendations were appropriate
The ombudsman also rejected Mrs G's argument that Succession Wealth should have advised her not to proceed with any withdrawals after the error was discovered.
"It was always the case that Mrs G could have declined all the recommendations that Succession Wealth provided and decided not to proceed," the ombudsman wrote, adding that "I think it was right for Succession Wealth to provide recommendations that met her previously stated objective."
The complaint additionally covered a life insurance recommendation intended to protect against potential IHT liabilities arising during the seven-year period after the gifts. Although the insurer significantly increased the quoted premium following medical underwriting, the ombudsman concluded that Succession Wealth was not responsible for that increase.
In the final ruling, the ombudsman found that while Succession Wealth's later recommendations were appropriate, the original advice had caused unnecessary distress by raising Mrs G's expectations.
Succession Wealth was ordered to pay Mrs G £500 compensation for the distress and inconvenience caused by the incorrect advice.
A Succession Wealth spokesperson told PA: "We take any distress felt by our clients very seriously. In this case, both the investigator and ombudsman recognised there was no direct financial loss and that the later recommendations made were suitable.
"We have reflected on the findings and continue to review our processes to support good client outcomes."
