With Profits  

Ombudsman backs Phoenix Life’s bonus explanation

Ombudsman backs Phoenix Life’s bonus explanation

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. 

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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.