Multi Pension Personal Plan · CAS-29588-B2G5

CAS-29588-B2G5

Ombudsman’s Determination Applicant Mr D

Scheme Multi-Pension Personal Plan (the Plan)

Respondent Aviva

Outcome

Complaint summary

Background information, including submissions from the parties

“I confirm that we have the Application and we are presently underwriting the required Term Assurance (the additional death benefits of £175,000) and the waiver of contributions option.

The application will be completed, in due course, and subject to underwriting terms, on the basis of the enclosed Quotation which shows the Society’s anticipated growth rate @ 10% per annum.”

“Contributions Monthly

Retirement Benefits £216.00

Waiver of Contribution £5.40

Additional Death Benefit £37.20 1 CAS-29588-B2G5 £258.60

Less Income Tax Relief at 29% £74.99

Net Contribution £183.61

Investment Contribution £253.25

The monthly contributions are payable for 35 years 2 months.”

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• Aviva had said that any fault in this matter lay with the (now defunct) broker. He disagreed with this contention as his complaint concerned the way in which the policy was operated and originally represented by Aviva/its predecessor.

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“The Mortality Factor is determined from time to time by the Actuary with reference to:

(a) the sex of the Annuitant/Life Assured

(b) the then age or Rated Age (as the case may be) of the Annuitant/Life Assured, and

(c) the A1967/70(5) ultimate mortality tables published by the Institute of Actuaries or such other mortality tables as are from time to time deemed to be appropriate by the Actuary.”

“The amount of the Mortality Charge shall be the Mortality Sum Assured, at the time, multiplied by the Rated Mortality Factor, if any, otherwise by the Mortality Factor.”

“The Mortality Charge, if any, shall be made monthly in advance on the Processing Date whilst the Sum Assured under the Personal Life Policy remains in force. The Mortality Charge is made following any Allocation of Units and/or any deduction in respect of the Service Charge on the Processing Date. The Mortality Charge will be made by reducing the number of Units allocated to the Policy by a number equal in value to the amount of that Charge, using the Ruling Bid Price on the date on which the charge is made.”

Adjudicator’s Opinion

• Mr D was sold a financial product which in principle set out to build a retirement fund and provide a certain level of life cover. Mr D’s overall contribution into the Plan would be split accordingly to buy investment units in the pension part of the Plan, and purchase mortality units in order to fund his life cover.

• Page 1 of the illustration Mr D provided, and the only page he provided, set out that the cost of his death benefit would be in the region of £37 monthly, but he had found out more recently he was paying as much as £231 monthly for this cover. Mr D’s surprise and upset that such a high sum has been paid towards this 4 CAS-29588-B2G5 benefit, and that a lesser amount than expected had been paid towards his pension, was understandable.

• Although the information on how the policy worked could be clearer, Aviva had set out that the Mortality Charge was variable, and that the Mortality Factor itself, which formed part of the calculation of the Mortality charge, was dependent on various factors.

• This information was “difficult to follow” as Mr D had contended and it was not made explicit that the contribution amounts quoted in the illustration could change. However, the information which Equity & Law (now Aviva) had provided on this point sufficiently set out how the Plan operated, so there was no negligent misstatement or omission on its part.

• Although, this was a complex policy which Aviva could have explained better, importantly, an adviser had sold and provided advice on it. It would have been the job of the adviser to explain how the policy would work and how Mr D’s contributions could change.

• Mr D had suggested that his adviser might not have known how the policy operated because they were guided by the information supplied by Equity & Law. However, it would be surprising if the adviser fundamentally misunderstood the mechanics of the policy and in any case, it would not be prudent for a financial adviser to sell a policy to an individual which they did not fully understand.

• The complaint could not be upheld.

Mr D did not accept the Adjudicator’s Opinion and made the following further comments:-

• The Adjudicator’s findings still left the question of how the life assurance monthly costs, originally quoted at £37 average per month, had turned out to be more than £80 on average. Had the premiums varied between £20 to £60, approximately £40 on average, this probably would have been acceptable. However, the estimate had proved to be “way out”. Unless there was a reasonable explanation for this, even on the Adjudicator’s analysis, the original illustration was misleading.

• Aviva had said that it did not disclose details of the mortality factors so it was not possible to check the charges levied. There was no explanation of why the charges were so much in excess of the estimate, or why the charges had been so volatile in recent times. Such volatility made no sense yet no explanation was forthcoming, other than to say it was all in accordance with the policy booklet, which incidentally, was not issued until after the policy commenced.

• In terms of page two of the November 1986 illustration (now provided), he wished to add that in respect of the reference to “attached notes” on this and page 1 of the illustration, no notes were received.

5 CAS-29588-B2G5 • While there may be a case to make against the broker, who for whatever reason did not advise on the detailed operation of the life assurance costs, he relied on the information provided by Equity & Law and this was, at best, misleading. In addition, prior to December 2017, no mention was made of the actual costs being incurred. Indeed in the annual review of the policy document, which was issued 7 November 2015 and 5 November 2016, it gave the annual life assurance cost at £445.80 (£37.15 per month), as did the first annual review dated 15 December 1987, and all others in between. He could not see why it was acceptable that the actual costs were not clearly stated.

• He also could not see why he was being denied the information which would allow him to check the charges applied. It did not make sense to him that the charges had increased so considerably and were so volatile. What had changed since the estimate was produced? He could accept that life expectancy had increased over time but that should make the cost of life assurance less, not more. Furthermore, the recent monthly costs seemed to be substantially in excess of what might reasonably be charged for the cover provided. Hence, there seemed to be some anomaly in the way the calculations were being undertaken which remained unexplained.

The complaint has now been passed to me to consider. I agree with the Adjudicator’s Opinion and I will therefore only respond to the main points made by Mr D for completeness.

Ombudsman’s decision

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I do not uphold Mr D’s complaint.

Anthony Arter

Pensions Ombudsman 24 March 2020

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