Legal General Worksave Pension Plan · CAS-47459-T2D4

CAS-47459-T2D4

Ombudsman’s Determination Applicant Mr L

Scheme Legal & General WorkSave Pension Plan (the Plan)

Respondent Legal & General Assurance Society (Legal & General)

Outcome

Complaint summary

• The change was made without his consent.

• He did not receive the letter from Legal & General which detailed the proposed changes.

• Legal & General said it would select an alternative fund based on similar assets and sector, but the fund chosen bore little resemblance to his original fund.

• He was not informed there was no equivalent replacement fund available.

• The selected fund had only been in operation for two days.

• The new fund did not achieve the same level of investment performance compared to his original fund.

• The change in fund has caused him a financial loss.

Background information, including submissions from the parties and timeline if events The sequence of events is not in dispute, so I have only set out the salient points. I acknowledge there were other exchanges of information between all the parties.

On 30 June 2011, Mr L established the Plan with Legal & General. The Plan is a group personal pension arrangement. 1 CAS-47459-T2D4 On 23 March 2018, Legal & General issued its annual statement to Mr L. It said:-

• The value of Mr L’s Plan as at 20 March 2018 was £144,607.25.

• There had been an investment loss of approximately £26,400 during the previous year.

• Approximately 65% of Mr L’s pension pot was invested in the BlackRock Gold and General Fund (the Gold and General Fund) and 35% was invested in the Cash Fund.

On 28 March 2018, Mr L switched £15,771.88 out of the Cash Fund into the Gold and General Fund.

On the same day, Legal & General issued a letter confirming that Mr L’s funds in the Plan were invested in the Gold and General Fund and also the Cash Fund.

In May 2018, Legal & General issued its Member’s Booklet for the Plan. It said in the ‘Making Changes’ section under the heading ‘Fund Closure’ on page 20:

“The insurer may close a fund so that it is no longer available, or so that no further contributions can be made to it. This may happen if:

• In the opinion of the insurer it becomes impractical or inappropriate to maintain a fund, e.g. where there are very few investors.

• The fund performance consistently falls below expectations in the opinion of the insurer.

• The fund is not suitable for use within a workplace pension, in the opinion of the insurer.

• The fund does not meet customer needs.

The reason we may make a change is not limited to these scenarios.

If this happens, we will give you three months’ notice in writing. If this is not possible, we will give you as much notice as we can. We will give you details of the change, the options available to you and will explain what will happen if you don’t respond. You will have the option to opt out of the change and make your own investment decisions. If we do not hear from you we will switch your units into the fund or funds, specified by us in the notice.”

On 25 July 2018, Legal & General issued a letter to Mr L to an address which Mr L had confirmed he was living at that time. The letter outlined three changes which were being made to funds offered by the Plan. These were:

• Some of the funds he held would be closed and his investment would be moved into another fund.

2 CAS-47459-T2D4 • All of the funds would be managed by Legal & General Assurance (Pensions Management) Limited.

• The funds would be supported by using the latest investment platform technology.

“As a result of the review of our fund range we will be closing some of the funds in which you are currently invested and introducing new ones. Any money that you have already invested in these funds, along with any future contributions, will be moved into alternative funds that have been carefully selected by us and reviewed by our independent investment advisers.

In selecting alternative funds, we’ve chosen funds that:

• Invest in similar assets

• Invest in a corresponding sector, and

• Where possible have a similar or lower charge than your current fund(s). This will not be the case in every situation…

WHAT SHOULD I DO IF I WANT TO CHOOSE OTHER INVESTMENT FUNDS?

If you would like to change your investment choices you can do this at any time but if you would like to select a different fund choice to the one we have selected on your behalf you will need to do this before 26 October 2018.”

On 28 July 2018, Legal & General issued a letter to Mr L outlining some of his options for accessing his pension funds. It also confirmed he was invested in the Gold and General Fund and the Cash Fund.

• 82.5% in Gold.

• 10.1% in Silver.

• the remainder was held in Cash and Derivatives, Copper and other non-specified investments.

• It confirmed the investment performance was -10.99%, 57.72% and 0.74% over one, three and five year periods respectively.

3 CAS-47459-T2D4 On 3 August 2018, Mr L changed address and notified Legal & General of this. Mr L also arranged for his post to be redirected to his new address.

On 6 August 2018, Legal & General wrote to Mr L confirming his change of address had been recorded.

In August 2018, Legal & General set up its PMC Henderson Diversified Alternatives Fund (the Diversified Alternatives Fund).

From October to December 2018, Legal & General implemented changes to its investment platform.

On 24 October 2018, Legal & General implemented the switch out process for the Gold and General Fund.

On 26 October 2018, Legal & General implemented the switch in process for the Diversified Alternatives Fund.

On 22 March 2019, Legal & General issued its annual statement to Mr L. It said:-

• The value of Mr L’s Plan as at 20 March 2019 was £178,601.95.

• After allowing for £39,754.50 paid into the Plan during the previous year and investment charges, there had been an investment loss of approximately £5,600 over the year.

• Approximately 84% of Mr L’s pension pot was invested in the Diversified Alternatives Fund and 16% was invested in the Cash Fund.

On 5 June 2019, Mr L submitted a complaint to Legal & General under the Plan’s complaints procedure. He said that he first learned of the switch out of the Gold and General Fund to the Diversified Alternatives Fund when he received the 2019 annual statement.

On 25 July 2019, Legal & General issued its response to Mr L’s complaint. It said:-

• The letter of 25 July 2018 which explained the proposed fund changes was issued to the address it held for Mr L.

• Legal & General monitored its fund range to ensure the funds available met the needs of all of its customers.

• After reviewing the choices available on the investment platform, it had made some updates and changes.

• The Gold and General Fund was closed because it was considered a very specialist option and too focused for the majority of its customers.

• A different and more diversified fund of alternative asset classes was offered as a replacement.

4 CAS-47459-T2D4 On 5 March 2020, following a switch request from Mr L, Legal & General wrote to Mr L. It confirmed all of his funds, totalling £181,762.30, had been switched into the Cash Fund.

On 19 March 2020, Mr L withdrew £95,000 from the Plan and re-invested the proceeds with Hargreaves Lansdown.

On 19 March 2021, Mr L withdrew the remaining amount of £86,681.77 in the Plan and re-invested the proceeds with Hargreaves Lansdown.

Summary of Mr L’s position

Mr L submits:-

• He became aware of the switch of funds in late March 2019 on receipt of the March 2019 statement. However, he only realised the difference in the type of investment later.

• As of 20 March 2019, he held 84.26% of his funds in the Diversified Alternatives Fund and 15.74% cash.

• All the units were sold by the end of February 2020.

• This left a total cash only investment fund of £181,762.30 of which £153,152.91 (84.26%) was from the sale of the Diversified Alternatives Fund.

Summary of Legal & General’s position

Legal & General submits:-

• The letter of 25 July 2018 detailing the investment changes was issued by post to the address held on file for Mr L. There was no reason it would not have been received.

• Legal & General monitors its fund range to ensure the funds available meet the needs of its customers. Having done so, some updates were made.

• Legal & General has a responsibility to ensure its range of investment options is suitable for its customers.

• The Gold and General Fund was closed because it was considered a very specialist option.

• This decision was influenced by input from its Independent Investment Adviser (the Investment Adviser) who recommended that the commodities-based fund was too focused for the majority of Legal & General’s customers.

• The Investment Adviser suggested offering a fund which focused on a number of alternative asset classes, rather than one specific one.

5 CAS-47459-T2D4 Adjudicator’s Opinion

• Mr L complained he did not receive the letter from Legal & General dated 25 July 2018, which detailed the proposed fund changes. Mr L changed address shortly after the letter had been issued. However, he took steps to minimise any potential disruption to the delivery of his mail by arranging a forwarding service. So, in the Adjudicator’s view, this should not have been a factor in the letter not being received.

• The letter was correctly addressed. In the Adjudicator’s view, there was no reason why the letter would not have been delivered to Mr L. In his opinion, Legal & General could not be held responsible for the non-delivery of the letter or the consequences of this.

• Mr L said Legal & General reinvested his pension benefits in an alternative fund without his consent. The Member’s Booklet, which acted as the Terms and Conditions for the Plan, explained when Legal & General could close a fund. This included when it considered:-

o There were very few investors.

o Poor fund performance had occurred.

o The fund was not suitable for use within a workplace pension.

o The fund did not meet customer needs.

• The Adjudicator was of the opinion that Legal & General had the authority to withdraw an investment fund from its platform, as stated in The Member’s Booklet.

• The Member’s Booklet also said if it was withdrawing a fund, it would provide three months’ notice in writing of this. The Adjudicator was satisfied that Legal & General’s letter of 25 July 2018 provided Mr L with this notification. As the changes did not take place until 24 October 2018, the Adjudicator was of the opinion Legal & General acted in accordance with its Terms and Conditions.

• Mr L had also complained that he was informed an alternative fund would be selected based on similar assets. However, he said this was not the case, as the new fund had only been in operation for two days and it did not achieve the same level of performance.

• Mr L’s benefits were originally invested in the Gold and General Fund. Legal & General had cited the reason for no longer offering the Gold and General Fund 6 CAS-47459-T2D4 was due to it being a very specialist option. It also said the commodities-based fund was too focused for the majority of Legal & General’s customers. Given that over 90% of the fund was invested in companies whose business was related to Gold and Silver, it was reasonable to conclude this was a specialist fund. So, it was understandable why this type of fund may not have had large appeal and Legal & General considered it to be appropriate to remove this fund from its platform. The Adjudicator was of the opinion it was within Legal & General’s discretion to make such a change.

• Legal & General said in its letter of 25 July 2018, it would choose replacement funds that invested in similar assets and in a corresponding sector. The replacement fund, the Diversified Alternatives Fund, has a wider spread of investments. Although the commodity content was much lower than the Gold and General Fund, the Adjudicator was of the opinion the investments it held would reasonably be classified as alternative assets. The main asset classes were generally considered to be Cash, Equities, Fixed Interest, Securities and Property. There was no evidence to suggest that the Diversified Alternatives Fund was not an appropriate replacement fund given the circumstances.

• Mr L said Legal & General set up and subsequently launched its own Diversified Alternatives Fund immediately prior to his fund being switched into it. However, there was an existing version of the fund in operation prior to this date.

• Regarding investment performance, neither of the funds came with any guarantees as to what returns would be achieved. This was dependant on the values of the underlying assets held by the funds. The Gold and General Fund Fact Sheet dated 31 July 2018 showed that there had been growth of 0.74% over a period of five years. However, the fund had also recorded over a 40% loss and over 50% gains in value during this five-year period. This demonstrated the volatile nature of the fund. So, in the Adjudicator’s view, using past investment performance was not necessarily an accurate indicator of future performance.

• Legal & General’s letter of 25 July 2018 explained what Mr L should do if he was not happy with the replacement fund it had selected, although the Adjudicator noted Mr L said he did not receive this letter, so he would not have been aware of the intended fund change. In the Adjudicator’s view, Legal & General fulfilled its obligations by issuing the information to the correct address for Mr L.

• The Adjudicator was satisfied Legal & General was able to make a commercial decision as to what investment funds it offered, as this was detailed in the Member’s Guide. The Adjudicator had not seen any indication that Legal & General guaranteed the ongoing availability of any investment funds.

Mr L did not accept the Adjudicator’s Opinion and the complaint was passed to me to consider.

7 CAS-47459-T2D4 Mr L provided some further comments in response to the Opinion. In summary he said:-

• The Diversified Alternatives Fund was not an appropriate replacement fund. Legal & General said that it had replaced the Gold and General Fund because it was a specialist fund and too focused for the majority of its customers. However, it switched his money to a single fund which, on its website, was listed as also being a specialist fund.

• Legal & General should have mitigated the risks of under performance by switching his investment to a range of funds. This could have included, for example, the North America Equity Index Fund, which had performed well.

• He has not seen any evidence that Legal & General took independent advice when re-investing his money.

• The Diversified Alternatives Fund was the sixth most expensive fund to manage out of the 85 funds available. Since January 2018, Legal & General’s own PMC Diversified Fund had achieved similar performance to the Diversified Alternatives Fund, but with half the charges.

• Janus Henderson’s Key Investor Information document indicated that the Diversified Alternatives Fund was an unsuitable investment when it said:

“This Fund may not be appropriate for investors who plan to withdraw their money within 5 years. The Fund is designed to be used only as one component of several in a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested into this Fund.”

• He was due to retire three years and nine months later, which Legal & General was aware of.

• Its use of the term “specialist” when making the decision to close the Gold and General Fund related to the fact that the fund had a very narrow selection or exposure to asset types or market sectors. It and its independent investment adviser determined this as being inappropriate for the majority of workplace members.

• The investment objective of the Diversified Alternatives Fund outlined the diversified nature of the portfolio, including its exposure to funds that invested in a range of other funds.

• It could not guarantee that certain funds would outperform others and it had never made such commitments as part of the switch exercise.

I have considered the additional points raised by both Mr L and Legal & General, however they do not change the outcome, I agree with the Adjudicator’s Opinion. 8 CAS-47459-T2D4 Ombudsman’s decision

9 CAS-47459-T2D4

I do not uphold Mr L’s complaint.

Anthony Arter

Pensions Ombudsman 14 October 2022

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