The Pensions Ombudsman has rejected a complaint that Phoenix Life failed to make it clear it would not be paying a final bonus.
A client, referred to as Mr N, said Phoenix Life must have been aware in 2011 that a terminal bonus would not be paid out on the Sun Alliance Life with profits fund he took out in 1984.
He accused the provider of deliberately giving him misleading information.
But Karen Johnston, deputy Pensions Ombudsman, ruled Phoenix Life had clearly explained a final bonus was not guaranteed.
Under traditional with profit policies, the initial guaranteed basic sum assured is increased by the addition of annual bonuses.
Investors may also get a terminal/final bonus when their policy matures - but this is not guaranteed.
Mr N provided the ombudsman with a Sun Alliance Life booklet from July 1987 that stated the with profit option offered a guaranteed basic sum plus annual bonuses and “a capital bonus may be added at retirement.”
An information sheet provided in October 1987 contained similar wording.
Mr N’s policy, which matured in March 2016, originally had a guaranteed basic sum assured of £20,368, which increased to £25,496 in July 1989 when he increased his premiums.
Phoenix Life’s with profits guide as at January 2009 stated the benefits payable at maturity were the guaranteed amount, the annual bonuses and final bonus, which may be added when the policy matures.
The guide stated to receive full benefits all premiums due must be paid and, in the event that the policy is paid up, any futures bonuses will be added to the reduced benefit.
The guide stated Phoenix Life would confirm the exact amount of any final bonus when it made payment.
Mr N’s annual plan update at 31 December 2010 showed a guaranteed basic sum assured of £25,496 and total bonuses earned to the statement date of £15,750.
In February 2011 Phoenix Life issued a notice, which outlined changes to how Phoenix Life managed with profits business.
The notice stated ‘for the July 2010 final bonuses Phoenix Life had allowed an additional 5 per cent increase before smoothing and that this meant it had generally limited increases in total maturity payouts to 12.5 per cent’.
The notice stated that the benefits payable at maturity were the guaranteed basic sum assured; annual bonuses; and a final bonus which may be added when the policy matures.
On 24 April 2011, Mr N who was then aged 60, enquired about taking immediate benefits from the policy; the total available to purchase an annuity and the annuity rate.
He also asked for details of the total sum which would be available should the policy continue to March 2016 on the basis of the premium continuing and premiums ceasing.
On 7 May 2011, Phoenix Life issued a retirement illustration based on a selected retirement date of 7 May 2011 and a fund value of £28,848 as at that date.
It provided six benefit illustrations, using different combinations of tax free lump sum, yearly increases, guarantee periods and spouses pensions.
Phoenix Life stated the quotes took into account any guaranteed annuity rates which applied to the plan and were just examples and added members should ask if they would like quotes based on specific choices they wanted to make.
The letter also recommended taking advice before making a decision and offered assistance in finding a financial adviser.
On 18 May 2011, Mr N notified Phoenix Life that he had decided not to take his benefits before the maturity date because taking the pension early is too expensive in terms of lost earned bonus and final bonus payments.
Mr N continued paying into the policy and his September 2014 annual statement stated that ‘final bonus, if applicable, is only payable when the plan becomes a claim and final bonuses are reviewed biannually as a minimum but may be changed at any time and are not guaranteed’.
Phoenix Life’s July 2015 with profits update also stated that ‘the payment of a final bonus is not guaranteed and guarantees would normally be lost if the policy is surrendered or transferred out’ and the final bonus may be payable but this is not guaranteed.
Mr N took his benefits on 25 March 2016 and Phoenix Life said the total value of his policy at that date was £41,363 - the combined value of the guaranteed basic sum assured of £25,496 and total accrued bonuses of £15,867.
Mr N complained he had lost out on annuity income by delaying his retirement until 2016 in the reasonable expectation that he would receive a final bonus.
In his complaint, Mr N said while Phoenix Life’s continued references to ‘a non-existent final bonus’ in its literature is legal, he certainly found them mis-leading.
Mr N argued Phoenix Life should stop hiding behind phrases such as ‘...may be added’ and ‘...not guaranteed’ and be honest and clear in its information.
He argued Phoenix Life failed to confirm that there would be no possibility of a terminal bonus - at a time when he was trying to make an important financial decision about his pension.
He calculated his financial loss to be £2,400, equating to the additional five years’ worth of premiums he would not have otherwise paid and his calculated loss of five years’ pension payments of £14,000, plus five years’ interest on his cash lump sum to be reasonable compensation.
The Pensions Ombudsman stated the evidence did not support that Phoenix Life gave Mr N misleading information about the payment of terminal bonus on his policy and the communications “were sufficiently clear.”
emma.hughes@ft.com
