The Financial Ombudsman Service has upheld a decision against Phoenix Life after it failed to transfer the full value of a client's pension to their new provider which incurred further costs.
The complainant, identified as Mr M, explained he had a pension policy with Phoenix and, in 2019, he approached the firm and asked it to transfer this to a new pension provider.
On September 19 2019, the date of the transfer, Mr M’s pension was worth £162,729.68, but Phoenix mistakenly transferred only £154,717.16, leaving a shortfall of £8,012.52.
This fact came to light in October 2022 following an internal Phoenix review, after which the firm immediately offered to make a cash payment to Mr M for the shortfall.
After tax had been deducted, £6,925.25 was paid to Mr M by cheque in October 2022 but Mr M was unhappy with this.
He complained to Phoenix about the mistake and the length of time it took to come to light, and that the cheque for the underpayment was sent to him rather than to his new pension policy.
Mr M was also unhappy that tax was deducted from the underpayment cheque and said he had lost out on investment growth, in relation to the underpayment, during the period in question.
Phoenix responded and apologised for not checking whether Mr M would prefer to have the funds paid into his new policy but, having paid the sum to Mr M, they were required to deduct income tax from the amount paid.
Phoenix therefore offered to pay Mr M a further amount of “loss” compensation of £2,473.68, the difference between £9,398.93 and the net payment previously paid of £6,925.25.
They also offered to pay Mr M £200 compensation for the trouble and upset caused, a further £200 for their delay in responding to the complaint, and £40 towards the cost of phone calls he had made.
Mr M was unhappy with this offer and so brought his complaint to the Fos in July 2023.
Fos decision
After its investigation, the ombudsman said Phoenix’s mistake of not transferring the full value of Mr M’s policy to his current policy was “not in dispute”.
“The question for me to consider is whether Phoenix have done enough to compensate Mr M for their mistake, and if not, tell them what I think they should do,” the ombudsman added.
Consequently, it pointed out that as soon as Mr M started to draw this pension, those drawings would be subject to tax as he would be able to take 25 per cent of his pension tax-free and would pay income tax on any drawings made, including the shortfall transferred in.
Because this is what would happen to the shortfall transferred amount, it meant the calculations must be applied to the one-off shortfall payment that Mr M received from Phoenix.
Therefore the ombudsman believed that it must be treated, as much as possible, in the same way.
Tax would have been deducted from it if it was drawn from his pension, so tax must be deducted from the one-off payment that was made directly to him.
