Phoenix Life Limited · DRN-6230800

The complaint The trustees of Mr R’s Trust are unhappy, in summary, as they don’t think Phoenix Life Limited (‘Phoenix Life’) has correctly administered the reviewable whole of life policy that’s held with it. Mr R has corresponded with us though, so I’ve largely referred to him throughout for ease. What happened I've outlined what I think are the key events and points involved in the complaint below. In 1995 Mr R took out a reviewable whole of life policy, which Phoenix Life is now responsible for. I understand the policy was subject to a review at the ten-year anniversary, then every five years until Mr R turned age 70 and every three years thereafter, unless the policyholder opts for annual reviews instead. I understand that reviews ‘passed’, requiring no changes, until a letter received in December 2021 in respect of the 2022 review which ‘failed’. This review letter said, in bold, that Mr R’s premiums weren’t sufficient to maintain his policy benefits, that he needed to take action to either increase the premiums or reduce his sum assured and that it’s possible further changes would be necessary in future. The letter said the policy’s current fund value was just over £1,100. And, in order to maintain his benefits until the next review, Mr R was given the option to either increase his monthly premium to just over £86 to maintain the sum assured of just over £95,600, or to reduce this to just under £60,200 for the existing premium of just over £44 (the default option). Mr R was also invited to let Phoenix Life know if he wanted it to calculate the premium amount that would be sufficient to maintain his policy benefits for life. The enclosed frequently asked questions (‘FAQs’) said, amongst other things, that if a review confirms the current premium isn’t sufficient then Mr R is given the opportunity to take necessary action to either increase this, reduce the sum assured or allow the policy to lapse. It explained that when reviewing the policy it considers investment value and predicted growth – which is much lower than when the policy was taken out – plus premiums, less policy charges. It said it checks whether growth will be more than is required to meet the policy charges. And that if the policy has a negative value or it can see this will happen in future, it will recommend Mr R take action and explain his options. The FAQs also said that since the cost of cover rises with age, it’s possible this already exceeds the premiums paid, or may start to do so in future. And that if a reduction in benefits is required now then a further change might be necessary at future reviews. Mr R seemingly contacted Phoenix Life in response to the above review letter, given it wrote to him in January 2022 thanking him for his phone call. In this Phoenix Life said, in summary, that the 2022 review letter was correct. And it provided information, and an illustration, at Mr R’s request of what the position would be if he increased his monthly premium to £50, which it said showed that his life cover would still need to reduce to just under £64,000. Amongst other things, Phoenix Life also explained that most of Mr R’s premiums goes towards paying the policy costs, which increase with age. It said that when the cost of cover exceeds the

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premium this means policy fund value decreases. And that, in Mr R’s case, he only had a small fund value remaining and charges have been exceeding his premium, which meant a premium increase or benefit reduction was required. It seems Mr R decided to allow his sum assured to reduce, as Phoenix Life wrote to him in early February 2022 to confirm receipt of his forms and that his sum assured would therefore reduce to just under £60,200. It also confirmed Mr R would next receive a review letter in December 2024 for the 2025 review. Around the same time Mr R complained to Phoenix Life that he’d been mis-sold the policy as he wasn’t made aware that it’s reviewable. And, later that month, on 11 February 2022, Phoenix Life sent Mr R its final response letter. It said that the policy was suitable for Mr R’s need for financial protection for his family in the event of his death, that the documents explained the premium would have to potentially increase and there’s evidence policy reviews were discussed. Phoenix Life also said that, as the policy was sold in 1995, Mr R’s mis-sale complaint had been made too late. And he was given six months from the date of the letter to refer the matter to our Service if he remained unhappy. In December 2023, Phoenix Life sent Mr R a letter in respect of a 2024 review. This said the policy’s current fund value was just over £344 and he was given the option to either increase his monthly premium to just over £91 to maintain the existing sum assured or to reduce this to just over £27,800 for the existing premium of just over £44 (the default option). And the enclosed FAQs provided similar, if not the same, information as that set out above. In early January 2024, Phoenix Life sent Mr R a reminder letter of his options. And, on 24 January 2024, Phoenix Life wrote to Mr R to confirm that as it hadn’t heard from him the default option would apply. In the meantime though, on 18 January 2024, Mr R raised a further complaint with Phoenix Life. And, on 11 March 2024, Phoenix Life sent its final response letter. It said that it previously issued its final response to a mis-sale complaint from Mr R in February 2022 concerning the policy suitability and reviewable nature, which it wouldn’t consider again. And, in respect of the policy review complaint, Phoenix Life said this had been too late. On 20 March 2024, Phoenix Life wrote to Mr R in response to a further call he seemingly made to it and it said that his policy is currently being reviewed every three years, that it would write to him two months in advance of his next review, the latter of which it said would be in 2027. And it said that, while Mr R’s benefits are guaranteed until then, it’s possible a premium increase or reduction in benefits will be necessary at that time. In mid-April 2024, Phoenix Life wrote to Mr R again and said, in summary, that some difficulties with its review system had led to reviews being issued on incorrect review dates. It apologised, confirmed that Mr R’s plan wasn’t due for review until 2025 and that he therefore shouldn’t have been sent a review letter in December 2023. It said Mr R’s existing sum assured of just under £60,200 for a premium of £44.28 was still in force and to disregard the previous review letter. The following month, unhappy with this, Mr R referred a complaint to our Service about the sale of the policy. Mr R said it wasn’t suitable for his needs as he wanted a policy to last throughout his life to protect his wife and family upon passing away, he said he wasn’t given alternatives at the time nor told about the reviewable nature of the policy. Mr R also said the reductions in cover had been rapid and the premiums to maintain the policy unaffordable. He said that the total reduction in the sum assured by just under £68,000 is extreme. And that at his age it's now impossible to buy affordable cover elsewhere, when he wouldn’t be in this position if he’d been told of his alternative of a policy with a fixed sum at the time of sale.

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Mr R also said that his mis-sale complaint hasn’t been made too late, as it’s a new complaint compared to the one he raised previously and the matter is now having a greater impact on them. Mr R said Phoenix Life’s responses have been dismissive and it has ignored that his wife’s complaint about an identical policy she was sold at the same time was upheld by our Service in 2015. Mr R said this matter is impacting them, causing them to worry about what the reviews will say, as they could end up with no cover. Mr R said his wife found her 2015 complaint stressful and, in 2022 and aged 70, she couldn’t face also pursuing a sale complaint about his policy. And that a delayed reaction to the 2022 final response letter alone shouldn’t prevent him now doing so. Phoenix Life maintained that Mr R’s mis-sale complaint has been referred to us too late to consider it and it said it doesn’t consent to us doing so. Phoenix Life said it does consent to us considering Mr R’s complaint about the policy reviews though, but it doesn’t think he would have done anything differently if he’d been given more information. Mr R went on to add, amongst other things, that: • He is also now aware from the review letter that he was mistakenly sent in December 2023 that the sum assured will likely decrease further in the 2025 review, which can’t be acceptable and when he has paid around £15,000 in total premiums. • The biggest change in his financial circumstances since taking out the policy is when he retired in 2018, his income drastically reduced and he can’t afford to pay higher premiums, nor can he get affordable cover elsewhere due to his age. So, in response to reviews he felt he had no choice but to carry on with the reduced sum assured. But before that he would have been much younger and might have gotten a better policy elsewhere. • In response to the 2022 review, he felt he had no choice but to continue with the cover. If he surrendered the policy he’d feel like he would have lost the premiums paid with nothing to show at the end of it. And Mr R maintained that he should have been told at the time of sale that the policy might expire rather than lasting for the whole of his life in the way he expected. One of our Investigators said we can’t consider Mr R’s complaint about the sale of his policy, as it hasn’t been referred to us within the timescales we’re bound by, which Mr R accepted. Our Investigator considered Mr R’s Trust complaint about the reviews and the way Phoenix Life managed the policy though. They said that Phoenix Life ought reasonably to have known since around 2012 that significant changes would likely be needed to the premiums or cover as Mr R got older, as the policy costs had started to outweigh the premiums paid. They weren’t persuaded Mr R would have sought and obtained fixed cover elsewhere though, as that would have been more expensive and for less cover, which Mr R wouldn’t have wanted and couldn’t afford. Instead, our Investigator said that given Mr R’s objective of leaving around £90,000 for his wife and that he was only comfortable paying what he had been, then upon becoming aware in or around 2012 that the policy would likely only pay that for another several years, Mr R would have likely surrendered it for the cash in value, which would have been around £2,000. So our Investigator said Phoenix Life should pay Mr R that value plus a refund of premiums paid from then on, with interest. Phoenix Life didn’t agree. It said, in summary, that it doesn’t think Mr R would have done anything differently in 2012/2013 had he been provided with clearer communications at the time, including projections as to what the sum assured could otherwise reduce to in future if he didn’t increase the premiums. It said Mr R is unlikely to have gone elsewhere and it thinks he would have kept this policy up until he thought it was no longer value for money and that 2022 would be more reasonable.

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In response, amongst other things, Mr R said that it would be a big decision for him to surrender the policy, particularly when he was due to receive the January 2025 review letter soon. Mr R said that either way, whether he continued with the policy and risked his wife ending up with nothing from it, or whether he instead considered surrendering the policy, the outcome wasn’t good. He said that he’d need to know the total of the surrender value plus premium refund, as well as what the likely 2025 review outcome would be as he didn’t know if this would end up along the same lines as that which he incorrectly received in December 2023. And that the above information would help him reach a decision on what he wanted. Since then, Mr R didn’t go on to receive a letter in December 2024 from Phoenix Life in respect of the 2025 review. Instead, it later wrote to him in November 2025 and explained that hadn’t been possible due to a system issue. It apologised for this and said it had reviewed the policy in November 2025 as of January 2025 and that Mr R had until early January 2026 to let it know his choice. Mr R was given similar information to that explained above and he was given the option to either increase his monthly premium to just over £107 to maintain the sum assured of just over £60,200 or to reduce this to just over £21,200 for the existing premium of just over £44 (the default option). The letter also said that Mr R’s fund value was £0. And it projected that Mr R’s premium could need to increase further at future reviews – to around £145 in 2028, £241 in 2031 and £422 in 2034 – or, otherwise, it said his sum assured could respectively decrease to around £17,000, then £12,000 and £8,500 at those times. As no agreement could be reached, the case has been passed to me for a decision. And I issued a provisional decision – which is largely set out again below – which explained that I didn’t intend to ask Phoenix Life to do anything more than pay Mr R’s Trust £250 in compensation. Phoenix Life accepted my provisional decision with no further comments to add. And Mr R said, in summary that, while he is disappointed and has lost trust in Phoenix Life, he respects my decision and intends to carry on with the policy for now. Although Mr R added that he’d like me to consider awarding more than £250 in compensation for all the worry and stress this matter has caused him and Mrs R since January 2024. What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. Having done so, while I appreciate Mr R’s Trust will be disappointed and I’ve considered the further comments provided, the outcome remains the same as that set out in my provisional decision, which I’ve largely repeated again below. While I’ve carefully considered the entirety of the submissions the parties have provided, my decision focuses on what I consider to be the crux of the matter in this case. Being the Trust’s unhappiness with the way Phoenix Life has managed and administered the policy in respect of the reviews. The purpose of my decision isn’t to comment on every point or question made, rather it’s to set out my decision and reasons for reaching it. In deciding this complaint and reaching my conclusions I’ve taken into account the law, any relevant regulatory rules including the principles and good industry practice at the time. And also including, amongst other things: • The FCA’s Principles for Businesses, in particular Principle 6 and Principle 7 (PRIN). • The FCA’s Conduct of Business Sourcebook (COBS), in particular COBS 2.1.1R(1)

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and COBS 4.2.1R(1). • The FCA’s Final guidance on the “Fair treatment of long-standing customers in the life insurance sector” (FG16/8). It isn’t in dispute that the type of policy Mr R has is a reviewable one. And I think it’s helpful at this point to explain more about how reviewable whole of life policies such as Mr R’s work before going on to explain what, if anything, I think Phoenix Life should have done. The key feature of such policies is that part of the premiums being paid throughout the years was to be invested to pay for the increasing costs of life cover later in life. This is because for these types of policies, there’s an increased likelihood of increasing life cover costs as the policyholder gets older. So, while I appreciate Mr R is unhappy with the effect of increasing costs on the value of his policy, these are simply an inevitable consequence of the policy becoming more expensive as the policyholder gets older. This is very typical for these types of policies. It is also what allows these to be more affordable at the outset. In the early years, when life cover costs are low, part of the premiums are invested to build up a fund that can be used to help pay for the increasing life cover costs in later years. At this stage, the premiums can meet the costs of the cover on their own. However, if the premiums remain at the same level, there inevitably comes a point where the life cover costs will exceed the monthly premium and units in the investment fund need to be sold to meet the shortfall, reducing the investment fund value over time – unless the fund’s growth outpaces the rise in cover costs. Eventually, regular increases in the cost of life cover will outpace the growth in the fund, so that as units in the fund continue to be sold, it will reach a point when the firm concludes that the premiums being paid and the fund value are no longer enough to pay for the costs of cover, as in Mr R’s case. To maintain the existing level of cover, substantial additional premiums will need to be paid with further amounts being needed each year as the consumers get older and the life cover costs increase accordingly, unless the sum assured has been substantially reduced. At this point, there can be several poor outcomes for the consumer. It’s possible that the investment fund will be almost completely depleted, leaving little surrender value. Any additional premiums are likely to be very expensive and potentially unaffordable at a time when the consumer may be retired or close to retirement and have limited means to meet significant increases in costs. Alternatively, if the level of life cover has reduced substantially, the policy may no longer meet the consumer’s objectives or ceases to be a cost-effective proposition. The impact of the sudden and significant changes that occur at that point can be mitigated by adjusting the terms of the cover earlier in the life of the policy. If, for instance, a consumer elects to pay additional premiums some years before the policy is likely to fail a review, this will have a smoothing effect over time, so that the policy is less likely to fail a review and the sudden and dramatic premium increases down the track can be avoided. This gives the consumer the chance to set premiums at a more affordable and sustainable level for a longer period – even for the rest of their lifetime. The new total premiums will be higher than they were at the outset, but not as high as they would otherwise need to become at the point the policy fails its review. Alternatively, at that earlier point, a consumer who is faced with significant increases in premiums or decreases in the level of life cover down the track might decide the policy itself is no longer cost effective, or that it is failing to meet its objectives, and elect to surrender the

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policy. In other cases, a consumer might decide that it is worth maintaining the policy on its existing terms right up to the point that the policy fails a review. The opportunity for a consumer to make these decisions is a key event in the life of the policy. Given the impact of increasing life cover costs on the investment fund, and in time on the premiums (or sum assured), consumers have important decisions to make about whether to retain the policy, increase the premiums and/or decrease the sum assured during the life of the policy. Those decisions become more difficult the longer the consumer pays into the policy and the options available for mitigating poor outcomes start to diminish. So it is in a consumer’s interest to make key decisions at an early stage in the policy’s life cycle, and to do so in an informed way, firms need to provide consumers with clear, fair and not misleading information. Increasing life cover charges and what should Phoenix Life have told Mr R? While Phoenix Life hasn’t provided us with the historical costs of cover when requested, it has said that the tipping point – the point the policy costs started to outweigh the premiums being paid – took place in 2012. And, looking at the available evidence, I can see that the number of units Mr R’s fund value was invested in have steadily declined from at least early 2012, which supports that units have been cancelled to support the cost of cover. So, based on the available evidence, the policy has been costing more than the premiums paid since at least as early as 2012. Taking into account the regulatory obligations I have set out above (PRIN) and what I consider to be standards of good industry practice at the time (including the regulator’s views as expressed in FG16/8), and in any event what I consider to have been fair and reasonable in the circumstances, I’m satisfied that Phoenix Life should have taken steps to ensure it communicated information to enable Mr R to evaluate the impact of the increasing life cover costs on his policy and the options available to his in a clear, fair and not misleading way. This needed to include the risks, costs and benefits associated with those options, as well as giving clear timelines for the making of decisions where applicable. In my view, this is something that Phoenix Life needed to do within 12 months of the tipping point being reached – and as I’ve said, the available evidence supports that this point likely occurred by around 2012. By giving Mr R clear information about how much the policy was costing and allowing him to compare those costs with the premiums being paid, Phoenix Life would’ve been acting consistently with the guidance at FG 16/8 that firms provide “regular communications” with customers – and to ensure that, in their communications, that “firms [include] sufficient and clearly explained details regarding the performance of the product, its value and the impact of fees and charges”. Such communications also needed to specifically set out the “value of any premiums paid in over that period”, and “charges incurred over the period in monetary figures”, including “major components and the charge to the customer for benefits such as life cover and guarantees”. What information did Phoenix Life give Mr R? Within a reasonable timescale after the tipping point was reached, Phoenix Life had an opportunity to provide Mr R with clear information to enable him to consider his options and make a timely decision. Particularly given that, with each year that passed, cover costs would likely continue to increase, making any potential mitigating steps more costly than these otherwise would be over time. I think Phoenix Life should’ve provided the information I previously outlined in a clear and accurate format, along with clear information about the options available to Mr R, together with the costs and benefits as well as time frames for reply. And not in a passive way that

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required the consumer to draw important inferences for themselves. Even if precise numerical information about the costs of those options could not be given, then at the very least I would expect to see reasonable approximations or illustrative examples so that he could reasonably appreciate the importance of considering his options at that point. While Phoenix Life hasn’t provided the review letters it sent Mr R prior to 2022, it’s reasonable to think these contained similar information to that given in the 2022 review letter that I have seen, for example. This provided Mr R with some information, such as that the reviews are to determine if Phoenix Life can carry on providing the same level of cover based on the Mr R’s current plan value and premiums, and that it couldn’t continue to provide this. And that the cost of providing the cover rises with age and might already exceed the premium being paid. But I can’t see that Mr R was given an explanation that the policy costs were higher than the premiums being paid in his particular case. Phoenix Life should have given Mr R sufficient and clearly explained details for him to appreciate how much his policy was costing and that the gap between the premium and the charges had closed, for example, for him to make an informed decision. And I can’t see that Mr R was given any reasonable approximations or illustrative examples to know the impact of deductions on the plan or what additional premium was needed to make the existing level of cover sustainable for life, for example. Therefore, I think there was an imbalance of knowledge between Mr R and Phoenix Life, which meant he couldn’t make a fully informed decision about what steps he wanted or needed to take following the tipping point being reached. But, despite my concerns that Phoenix Life has failed to show it provided sufficient information to Mr R as part of earlier reviews, I don’t think that if it had done so sooner that this would likely have led to him taking any different action. I’ll explain why. What, if anything, would Mr R have done differently? Had Mr R been given clear, fair and not misleading information, the options open to him at that point would have been to surrender the policy for the cash in value, pay an additional premium to maintain the total sum assured via a supplementary policy, reduce the sum assured or take no action. On balance, having considered all the submissions and information to decide what, if anything, I think Mr R would likely have done if Phoenix Life had provided him with the information it should have sooner, I don’t think anything would have been done differently in the circumstances, for the reasons set out below. In light of Mr R’s submissions, I think that he valued the Phoenix Life cover and still wanted it when he understood it would provide the sum assured of around £95,600. So, it does appear Mr R wanted and needed cover throughout the time he has held the policy, and that he was happy to pay the premium of around £44 for that sum assured, which the policy reviews continued to do until 2022. So I don’t think Mr R is likely to have surrendered the policy before then. And, while Mr R was then told at the 2022 review that his premium could no longer maintain the above sum assured, which would otherwise need to reduce, Mr R didn’t agree to increase his premium seemingly as he didn’t want, and couldn’t afford, to do so. And neither did Mr R seek to surrender the policy. Instead, Mr R kept it, despite complaining about the sale and knowing the sum assured had reduced and likely would again in light of the content of the 2024 review that he was incorrectly sent.

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I think it needs to be borne in mind at this point that the surrender value Mr R would have achieved has been low at the relevant times, against the respective sum assured and total premiums paid. And that, in the way Mr R previously told us, he chose to carry on with the policy thinking that if he did surrender he would have lost the premiums paid with nothing back for these at the end. To be more specific, in 2012 the surrender value was only around £2,000 against the sum assured of around £95,600. By 2022, the surrender value had reduced further to around £1,000 against the sum assured of around £60,200. And, as of 2025, the surrender value was zero, against total premiums paid to date of around £16,500, and a sum assured around £21,000. So, while I appreciate Mr R’s position, I don’t think his actions support that he would likely have made any changes to his policy or surrendered it – or any sooner if he has since done so – if Phoenix Life had provided him with the clear information about the cost of cover and potential future need for changes. Instead, I think it most likely Mr R would have decided to keep the policy in place, rather than take different action. And this means that I don’t think Phoenix Life needs to do anything in respect of the policy. Turning to the service Mr R has received though, Phoenix Life incorrectly sent him a review letter a year early in December 2023. And, in early 2024, Mr R was then also incorrectly told the next review would be in 2027, when reviews were due in 2025 and 2028. I think this would have been unexpected and unsettling for Mr R, given it was out of line with the review timescales he’d been led to expect. And, while Phoenix Life provided Mr R with the correct information in April 2024, for a few months he was mistakenly given the impression that his sum assured of around £60,200 at the time would reduce sooner than it otherwise would have. And Mr R also didn’t then receive the 2025 review letter as expected in December 2024, as that was late due to system issues which Phoenix Life has apologised for. So while, for the same reasons as those set out above, I don’t think Mr R would likely be in a different position now if not for these administrative errors, I think Phoenix Life should pay Mr R’s Trust £250 in compensation for this. While I’ve taken into account Mr R’s comments, I maintain that this is a fair and reasonable amount in the circumstances to make up for the frustration and upset caused by Phoenix Life’s errors. And I’m not telling it to do anything more than this. My final decision For the reasons given, my final decision is that Phoenix Life Limited should pay the trustees £250 in compensation. Under the rules of the Financial Ombudsman Service, I’m required to ask Mr R and Mrs K as trustees of Mr R’s Trust to accept or reject my decision before 14 April 2026. Holly Jackson Ombudsman

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