Not upheld: pension fund management and transfer value calculation complaint against Phoenix Life Limited

Decision detail

Summary

Miss D complained that her pension's transfer value had dropped by over £10,000 in four years despite positive market performance, believing the fund value should be preserved until retirement. Phoenix Life did not uphold the complaint, and Miss D referred it to the FOS. The investigator and ombudsman found that the transfer value is determined by annuity rates (the cost of converting capital into income) rather than underlying fund performance, and the significant increase in annuity rates due to rising Bank of England Base rates explained the transfer value reduction. The ombudsman concluded there was no evidence of mismanagement and that Phoenix Life's operation of the with-profits fund was appropriately supervised by the FCA, so the complaint was not upheld.

The Ombudsman's reasoning

The ombudsman concluded that the transfer value is calculated by applying a cash option factor (based on annuity rates) to the guaranteed income payable, not by the underlying fund performance. The guarantee in this type of with-profits plan applies to the level of income at maturity (£2,068 per year), not the transfer value. The significant increase in annuity rates over the period (driven by rising Bank of England Base rates and gilt rates) reduced the cost of providing the guaranteed £2,068 income, thereby reducing the transfer value. This fall in transfer value was entirely consistent with increased annuity rates and did not indicate mismanagement. The FCA supervises the operation of with-profits funds with various checks in place, and no persuasive evidence of mismanagement was found.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website