Aviva Multi Pension Personal Plan · CAS-39026-L7Y8

CAS-39026-L7Y8

Ombudsman’s Determination Applicant Mr D

Scheme Aviva Multi Pension Personal Plan (the Plan)

Respondent Aviva

Outcome

Complaint summary

• The ‘misplacement’ of his funds by Aviva.

• The fact that Aviva ignored his complaint for 18 months.

• The fact that he did not receive a breakdown of what his maturing policy consisted of.

• The lack of notice provided by Aviva when reducing its terminal bonus rate.

Background information, including submissions from the parties

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“The key issue in setting Terminal Bonus rates is to achieve a fair payout to the policyholder in comparison to the performance of the underlying assets backing the With Profits fund. The final payout should fairly reflect the performance of the fund via the addition of Terminal Bonus, if the existing Regular Bonuses have not already done this.”

“The increases in the stock market over recent years must also be considered relative to the stock market downfall in earlier years, rather than in isolation.”

“On withdrawal the policy value will be made up of the unit value (which is guaranteed) and any terminal bonus. The terminal bonus is therefore the amount required to be added to the guaranteed value to bring it up to the fair value that we believe we should pay.

There is therefore no formula that we use to derive terminal bonus rates but rather we look at the whole book of business maturing and derive a smooth scale that gives us the fair payouts that we require.” 2 CAS-39026-L7Y8

• July 2017 – reduction from 72% to 64% based on a term of 32 years.

• January 2018 – reduction from 64% to 58% based on a term of 32 years.

• February 2018 – reduction from 58% to 57% based on a term of 33 years.

“On retirement, death, transfer and switching out of the Aviva Life & Pensions UK Limited FLC With-Profits Sub-Fund we may add a final bonus to the value of the units. We calculate the final bonus based on the period the investment has been held continuously in the Aviva Life & Pensions UK Limited FLC With- Profits Sub-Fund and the performance of the fund over that time. Please remember the final bonus amount can go up or down at any time.”

“On survival of the Annuitant to the Normal Retirement Date, the Society will pay, in accordance with the terms of the clause entitled ‘Payment of Retirement Benefit’ … (c) In respect of Units in the With-Profit Fund allocated to the Policy at that time, an additional bonus, if any, to be determined at the time by the Society.”

Adjudicator’s Opinion

3 CAS-39026-L7Y8 • The Adjudicator said that the payment of a terminal bonus is a common feature of pension plans of this type that include a with-profits element. The Adjudicator went on to state that it is also common for terminal bonus rates not to be guaranteed and for them to fluctuate on a regular basis, going both up and down. The Adjudicator noted that the statements issued by Aviva included this warning.

• The Plan’s terms and conditions state that the terminal bonus is determined by Aviva at the time of retirement. In calculating Mr D’s benefits, the Adjudicator was satisfied that Aviva had correctly followed these terms.

• The Adjudicator took the view that Aviva has the discretion to set its own terminal bonus rates. The Adjudicator did not consider that there was anything unusual about the terminal bonus terms under which the Plan operated. He also noted that Aviva had summarised to Mr D what adjustments it made to its rates in the year before he took his benefits.

• The Adjudicator did not agree that Mr D’s funds had been misplaced, but rather that an error had occurred in February 2017, when Mr D’s terminal bonus was misquoted by Aviva. Aviva confirmed that this was due to an incorrect profit start date being recorded on its new system. The Adjudicator was of the view that this would have been a cause of confusion and inconvenience to Mr D. However, it would not have been a cause of significant distress to him, as the error was corrected before his retirement in April 2018.

• The Adjudicator noted that Aviva had, on two occasions, apologised to Mr D for its delay in responding to his complaint. Also, it was noted that Aviva confirmed that the regular statements that it issued to Mr D stated that the final bonus could go up or down at any time. The Adjudicator was of the opinion that Mr D suffered some frustration due to the delay in Aviva responding, but took the view that the information on the regular statements Mr D received was of use in explaining the situation.

• Mr D said that he had not received a breakdown of what his maturing policy consisted of. This information was subsequently provided in Aviva’s communication of 11 March 2020. The Adjudicator was of the opinion that no further action was required on this point.

• Mr D stated that he was unhappy with the lack of notice provided by Aviva when reducing its terminal bonus rates. The Adjudicator took the view that Aviva’s policy not to communicate to members every time the rate changes was not unreasonable.

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

Mr D provided his further comments which do not change the outcome. He said:-

4 CAS-39026-L7Y8 • The reasons behind large cuts in terminal bonus rates should have been explained so that they could be independently verified as being reasonable.

• The apology provided by Aviva was inadequate. It should have come from a more senior member of the customer services team, explaining in more detail what went wrong.

• Inadequate concern has been given to Aviva’s reduction of £28,729 to his bonus and the fact that it was only resolved when he asked Aviva to investigate.

I agree with the Adjudicator’s Opinion and note the additional points raised by Mr D.

Ombudsman’s decision

I do not uphold Mr D’s complaint.

Anthony Arter

Pensions Ombudsman 17 February 2021

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