Not upheld: failure to honour compensation guarantee / pension administration complaint against The Prudential Assurance Company Limited

Decision detail

Summary

Mr A complained that Prudential failed to honour a compensation guarantee by refusing to allow him to transfer his section 32 pension in May 2022 when a loss calculation was provided. The guarantee, offered in 1997 following a Pensions Review, stated Mr A could transfer and compensation would be calculated at that time. However, Prudential refused because Mr A's fund value (£23,173) was insufficient to support his Guaranteed Minimum Pension (£67,395 cash equivalent), creating a £44,222 shortfall. The ombudsman found that while the compensation guarantee clearly allowed transfer, it could not override The Contracting-out (Transfer and Transfer Payment) Regulations 1996, which require transfer values to support the GMP. The ombudsman rejected arguments that Prudential should have topped up the fund or that comparison with Mr A's original occupational scheme was relevant. The complaint was not upheld, with Prudential's £100 distress and inconvenience payment deemed fair and reasonable.

The Ombudsman's reasoning

The ombudsman found that while Mr A's compensation guarantee clearly allowed for transfer, this guarantee could not be viewed in isolation from the legal and regulatory framework governing GMPs. The Contracting-out Regulations 1996 require that any transfer payment must be at least equal to the cash equivalent of the GMP. Since Mr A's fund value (£23,173) was substantially less than the GMP cash equivalent (£67,395), Prudential was legally prohibited from allowing the transfer in May 2022. The ombudsman rejected the argument that Prudential should have topped up the fund value, finding this would not have been proportionate given Prudential was operating within its policy terms and following relevant regulations. The ombudsman also rejected comparison with Mr A's occupational scheme, noting the relevant issue was whether Prudential fairly administered the section 32 policy and compensation guarantee, not whether the guarantee replicated occupational scheme features. The ombudsman noted Mr A would ultimately receive his compensation and GMP entitlements, and that his complaint essentially sought the difference in compensation cost between 2022 and 2023, which was not a fair basis for compensation.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website