Partially upheld: pension transfer redress calculation errors and guarantee fulfilment complaint against The Prudential Assurance Company Limited

Decision detail

Summary

Mrs C complained that Prudential failed to honour a 1999 guarantee to match her defined benefit pension benefits after an unsuitable transfer to a Section 32 bond in 1991. Following a Pension Review, Prudential offered to compensate her by ensuring her personal pension value matched her DB entitlements. In 2024, Prudential offered redress of £65,495.82, which Mrs C reluctantly accepted but remained dissatisfied. The ombudsman found that Prudential's capital value methodology was fair and in line with regulatory guidance, but identified two calculation errors: backdated annuity payments were not included, and the pre-1988 GMP annuity value was not reduced for the absence of a spouse's pension. The ombudsman also determined that the notional tax deduction should only apply to future losses, not past losses, as Mrs C was a non-taxpayer during the relevant period. The ombudsman upheld the complaint in part, ordering Prudential to pay an additional £3,335.32 comprising corrected loss compensation with interest, reimbursement of valuation costs, and a distress award.

The Ombudsman's reasoning

The ombudsman found that Prudential's guarantee was always to match the capital value of DB benefits, not to replicate an exact annuity, and that the redress methodology used was fair, reasonable and in line with regulatory guidance (PS22/13 and DISP APP 4). However, two calculation errors were identified and corrected: (1) backdated annuity payments from age 60 were not initially included in the Section 32 bond valuation; (2) the pre-1988 GMP annuity value was not reduced to account for the absence of a spouse's pension. The ombudsman also determined that the notional tax deduction should only apply to future losses (20%) not past losses (0%), as Mrs C was a non-taxpayer during the period from age 60 to April 2024. While Mrs C will likely be a taxpayer during most of her retirement (from 2030 onwards), the notional deduction is a recognised regulatory methodology. The ombudsman rejected allegations of deliberate delay or bad faith, finding instead that Prudential attempted to answer questions reasonably, though some communication issues caused avoidable confusion. The award for distress and inconvenience of £500 was considered appropriate given the frustration and stress caused by calculation errors and communication failures, though not as high as Mrs C sought.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website