The Pensions Ombudsman (TPO) has upheld a complaint against Prudential, ordering the firm to pay the complainant £1,000 in recognition of the “serious distress and inconvenience” caused as a result of the maladministration.

The complainant, Mr N, held two pension policies with Prudential, one of which benefitted from a guaranteed annuity rate (GAR).

However, Mr N complained that, as a condition of honouring the GAR, Prudential required him, when drawing upon the proceeds of the non-GAR policy, to use the proceeds to purchase an annuity through Prudential.

Prudential provided Mattioli Woods, on behalf of Mr N, with a customer information pack in January 2020, which confirmed that while Prudential no longer provided annuities, the GAR policy would still be honoured on its behalf by Legal & General (L&G).

“Please note that the guarantee will only be honoured by Legal & General and won’t be available if your member chooses another provider," it stated. "We would still recommend they shop around.”

From 1 February 2020, Mr N started receiving an annuity from L&G.

However, on 10 February 2020, Mattioli Woods telephoned Prudential in relation to its letter of 17 January 2020, with the notes on the conversation stating that it had “explained to the [financial adviser] that he can no longer buy an annuity with [GAR] and then transfer the residue from the non-[GAR] fund away”.

Subsequently, on 14 February 2020, Mr N raised a formal complaint against Prudential, stating that he was unhappy that Prudential removed the original option which allowed him to split the GAR Policy and the Non-GAR Policy between two providers.

He also argued that, even if Prudential was allowed to link the Prudential policies together, it imposed the change of contract without his consent.

In addition to this, Mr N argued that Prudential was not complying with the Pension Schemes Act 2015, by compelling him to purchase an annuity.

Responding to the complaint on 24 February 2020, Prudential said that it was “very sorry” that Mr N had not received a good level of service from it, accepting that it had caused Mr N inconvenience by changing its approach with this claims process and the options available to him.

However, the firm said that it could no longer facilitate the splitting of GAR and non-GAR funds between two different receiving schemes.

It acknowledged though, that whilst change was allowed under the product rules, it failed to communicate this clearly and that Mr N was initially working on the assumption that the funds could be split.

This assumption was formed given that Mr N’s brother accessed his funds from the SSAS in that way a year ago.

Given this, Prudential offered a payment of £400 as acknowledgment of the obvious distress and inconvenience caused.

It would said that it would review his case for any financial loss, if his policy was claimed within the next 60 days following its letter, although this process required Mr N to move forward with L&G directly if he was looking to annuitise to maintain his GAR element.

Mr N did not accept the response and, after the second complaint reached the same outcome, the case was passed on to TPO.

The ombudsman, Dominic Harris, upheld the case against Prudential, after concluding that the group had “incorrectly” limited Mr N’s choice regarding the use of the proceeds of the Prudential Policies.

TPO also found that Prudential was not transparent and did not provide sufficient evidence to support its stance.

To make matters right, the ombudsman directed Mattioli Woods to establish the amount of annuity Mr N could have purchased had he been offered an open market option on the non-GAR policy in February 2020 (the notional annuity) and compare this with the annuity from the non-GAR policy currently in payment (the annuity in payment).

If the comparison shows that the notional annuity is higher than the annuity in payment, TPO directed Prudential to, for past losses, pay Mr N the difference between each monthly instalment of the notional annuity and the annuity in payment, from 1 February 2020 to the date of settlement together with simple interest at the base rate quoted by the Bank of England during the intervening period.

For future losses, Prudential will need to ask L&G to calculate the cost of providing the difference between the notional annuity and the annuity in payment from the date of settlement, making allowance for any remaining guarantee period, contingent benefits and future increases, and use this sum to purchase the additional annuity with L&G.

If L&G is unable or unwilling to increase the amount of the annuity held with it, then Prudential shall pay Mr N a lump sum in an amount which, in the opinion of an independent actuary, fairly represents the capitalised value of that increase.

Whilst Harris noted that Mr N provided his own proposal on how to put matters right, requesting L&G make the funds available to him to have the choice to decide what to do with the funds, he confirmed that it is now not possible to cancel Mr N’s annuity.

However, he acknowledged that the situation would have “undoubtedly” caused Mr N “serious distress and inconvenience”, ordering Prudential to pay an additional £600 on top of the £400 already paid, to make a total of £1,000.

The ombudsman also critiqued the lack of action since the preliminary judgement, stating that, given that Prudential has not disputed the Preliminary Decision, it should not have taken it over two months from the date of the preliminary decision to contact L&G.

“This is disappointing and has unnecessarily delayed matters,” he stated.

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