Shore v Sedgwick Financial Services Ltd & Ors

A financial adviser advising on transfer from a defined-benefit occupational pension scheme must explain the available options, compare the benefits and risks, and provide sufficient information for an informed decision. The adviser must give clear warnings about taking a high or maximum income under a pension fund withdrawal scheme, including the effect of periodic changes to applicable annuity rates.

Where the client’s circumstances and priorities materially change, the adviser must revisit the advice and put suitable alternatives, including an annuity, squarely before the client. Breach of regulatory rules may evidence breach of the common-law duty of care. For limitation purposes, exposure to contingent risk is not itself damage, but damage occurs when that risk materialises and depresses the value of the claimant’s rights.

The claimant transferred accrued benefits from the Avesta occupational pension scheme to a Scottish Equitable pension fund withdrawal scheme in 1997, following advice from the first defendant’s financial adviser. He alleged negligent advice and breach of statutory duty under section 62 of the Financial Services Act 1986.

The court considered whether the adviser should have recommended retaining the occupational pension, whether the transfer and later withdrawal arrangements were properly explained, whether an annuity should have been recommended after the claimant’s circumstances changed, whether the breaches caused loss, and whether the claims were time-barred under the Limitation Act 1980.

1. Duty concerning the transfer. The regulatory regime supplied strong evidence of the standard expected of a reasonably competent adviser. The adviser was required to explain the options, compare the occupational scheme with the pension fund withdrawal scheme, explain the risks, identify the growth required to match the occupational benefits, and prepare a fair and clear personal financial report.
2. The adviser failed to carry out or provide the required comparison and failed to give adequate warnings about taking maximum income. These failures breached the common-law duty and the relevant IMRO rules. Nevertheless, on the circumstances communicated to the adviser, there was no duty to advise the claimant to remain in the Avesta scheme and defer benefits until age 60. The primary claim therefore did not succeed.
3. Changed circumstances and annuity. By May and June 1997 the claimant had lost the prospect of consultancy income, had resigned, and required income immediately. The adviser was then under a duty to revisit the advice, compare an annuity with continued pension fund withdrawal, and explain the risks of taking the maximum permitted income. That duty was breached. Had the risks and the firm’s 75 per cent guidance been clearly explained, the claimant was likely to have purchased an annuity.
4. Statutory duty. The failures to comply with IMRO rules 4.1(1)(b) and 6.7 and Appendix 6.7, Part 2(a)(ii) and (vii), caused loss and were actionable under section 62 of the Financial Services Act 1986, subject to limitation.
5. Limitation. Entering the pension fund withdrawal scheme did not itself cause immediate damage because the risks remained contingent. The risk materialised when falling annuity rates depressed the value of the claimant’s rights, by the beginning of 1999. By December 1999, and certainly by May 2000, he had sufficient broad knowledge of the damage, its attribution, and the relevant acts and omissions to engage section 14A of the Limitation Act 1980.
6. The limitation defence succeeded. The action was dismissed.

First-instance decision. The judgment does not state any prior appellate decision.