Scottish Friendly Assurance Society Limited · DRN-6178519

The complaint Mr C, Mrs C and Mr C1, as Trustees of the C Trust, complain through their representative about how Scottish Friendly Assurance Society Limited have administered a reviewable whole of life (RWOL) policy the Trust holds. They’re unhappy with the reduction in the plan’s value and the outcome of the 2023 policy review which meant that significant changes had to be made to either the policy’s sum assured or monthly premiums. For ease of reading, I will mainly refer to Mr C. What happened Mr and Mrs C took out the policy in 1991 in order to mitigate their potential inheritance tax liability. It initially provided cover of £200,000 for monthly premiums of £78.91 and was subject to annual indexation. By 2023 the level of cover had risen to £532,423.50 for a premium of £255.36 per month. The policy was subject to regular reviews, and the outcome of the 2023 review was that in order to maintain the sum assured, the premiums needed to increase to £903.18. Alternatively, the premiums could remain at the same level, but the sum assured would fall to £155,942.35. Mr C didn’t increase the premiums, so the sum assured was reduced. However, a complaint was made to SF about the outcome of the review. SF looked into the concerns that had been raised but didn’t uphold the complaint. Mr C didn’t accept SF’s findings and asked for our help with the matter. The complaint was considered by one of our investigators who thought it should be upheld. In summary, she thought that SF’s communications hadn’t been in line with the required standards and hadn’t provided Mr C with sufficient information to make an informed decision about the policy. If they had done so, then it was likely that Mr C would have increased the premiums by £100 from 2012 onwards. As SF were only able to reconstruct the policy from 2019 onwards when they took over the administration of the policy, she thought that they should calculate the additional premiums Mr C would have paid had he increased his premium by £100 in 2012 until 2019 and add this to the policy as a lump sum in 2019 and then reconstruct the policy based on the increased value of the policy’s underlying fund and also Mr C paying £100 more in premiums from 2019. SF didn’t agree with the investigator and made a counteroffer. They thought that the investigator’s proposal wouldn’t achieve the objective of making the policy last for life. They proposed to make a lump sum adjustment to the policy reflecting additional premiums of £100 per month from May 2012 to October 2019. They’d then worked out the investment growth on this sum, and based on this calculation the policy’s adjusted unit value was now c.£15,270. They’d absorb the cost of this adjustment and wouldn’t deduct it from the death benefit.

-- 1 of 3 --

However, it would be deducted if the policy was surrendered. They also carried out a lifetime sustainability review which gave two options: • Option 1: Increase the premiums to £2,251.03 per month to maintain a sum assured of £532,423. • Option 2: Maintain premiums of £355.36 and accept a reduction in sum assured to £117,255.80. The investigator thought the offer was fair and put it to Mr C, but he didn’t accept it. He thought that if SF had conducted the reviews annually as they should have done, he would’ve seen the trend, realised the policy wouldn’t mitigate a large portion of his IHT liability and would have closed it. He thought that SF should pay him the surrender value and refund any premiums paid from the time SF took over administration of the policy, given that they’d admitted failing to carrying to the reviews as expected. He thought that SF’s offer would tie him to the policy and it would almost certainly be subject to significant changes to either the sum assured or premiums in the future. SF didn’t agree to Mr C’s proposal as they didn’t think that there had ever been any previous indication that he would have surrendered the policy. Because there’s been no agreement, the complaint has been passed to me to decide. What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. Having done so, I think that this complaint should be upheld and I will now explain why. However, I’d firstly like to say that I agree with the investigator’s view that the firm who originally administered the policy and subsequently SF, didn’t provide Mr C with fair, clear and not misleading information about the policy. Because of this, Mr C was unable to make an informed decision about the policy. It is also clear that annual reviews which should have happened since 2019 didn’t take place. SF have accepted that they made failings in both of these areas, so my role here is to determine if the offer they’ve made to resolve things is fair and reasonable. In order to make this decision, I’ve considered what Mr C have told us about his likely course of action. He’s recently said that if he had seen the policy’s direction of travel, which would have been evident if SF carried out annual reviews as they should have done, he would have surrendered the policy. However, I must balance this with what he told us previously. In their earlier discussions with the investigator, Mr C told us that the policy was needed to mitigate a potentially significant IHT liability. He also said that he would have paid higher premiums in order to maintain the policy and wouldn’t have surrendered it as there was no need for the funds. These two statements are contradictory, so I’ve considered all the additional information I’ve received. The point-of-sale documents state that the purpose of the policy was for IHT planning. Therefore, it would have been required to last for life. From what I’ve seen, all the annual indexation increases were accepted, which in my mind indicates that Mr C wanted to maintain as much cover as possible and were prepared to pay more to do so. Taking this into account, and also the initial comments that Mr C made, I think it is more likely than not that Mr C wanted to keep the policy in place and not surrender it.

-- 2 of 3 --

With this purpose in mind, I’ve considered the offer that SF has made. The offer aims to recreate what Mr C would likely have done, if he’d been made aware what the future held for the policy. It has put the policy in the position it would have been in if Mr C had paid higher premiums from the time when the charges likely overtook the premiums being paid. SF have also calculated, based on their current assumptions about different factors such as mortality rates and investment growth, the level of premiums that are required to maintain the existing sum assured for life or the sum assured that the current level of premiums will support for life. It’s important to note that previous reviews were not calculated on a lifetime basis and instead were only focused on maintaining the policy until the next review. So, while I appreciate Mr C’s point that the policy may be subject to significant changes in the future, SF’s current calculations have been made with a view that the policy needs to last for life. This should mitigate the need for significant changes, but no guarantees can be given due to the assumptions that have had to be made. However, this is exactly what would have happened in the past if SF had calculated the changes that the policy needed to make it last for life. Therefore, I do not think the lack of a guarantee is unfair. Having weighed everything up, I’m satisfied that this complaint should be upheld, and I think that SF’s offer in addition to the £450 they previously paid to Mr C for the distress and inconvenience they caused him, is a fair and reasonable way to resolve this complaint. Putting things right I’m satisfied that the offer Scottish Friendly Assurance Society Limited have made to resolve this complaint is fair and reasonable. For the avoidance of doubt this is what they should do: • Apply a lump sum adjustment to Mr and Mrs C’s policy based on additional premiums of £100 per month being paid from May 2012 to October 2019. • Assume that Mr and Mrs C have paid premiums of £355.36 from November 2019 onwards. • Calculate the policy’s unit value based on the investment returns achieved by the fund from November 2019 to January 2026. • Carry out a lifetime sustainability review and present the results to Mr and Mrs C who can then decide what course of action to take. Scottish Friendly would absorb the cost of any adjustments and would not deduct this sum from the death benefit. The only circumstance in which this amount would be deducted was if the policyholder were to surrender the policy, in which case it would be deducted from the surrender value. My final decision For the reasons I’ve given above, I uphold this complaint. Scottish Friendly Assurance Society Limited should put things right as I’ve set out above. Under the rules of the Financial Ombudsman Service, I’m required to ask Mrs C, Mr C and Mr C to accept or reject my decision before 16 April 2026. Marc Purnell Ombudsman

-- 3 of 3 --