Utmost Personal Pension Plan · CAS-54844-H0X2

CAS-54844-H0X2

Ombudsman’s Determination Applicant Mr N

Scheme Utmost Personal Pension Plan (Utmost Plan)

Respondent Utmost Life and Pensions (Utmost)

Outcome

Complaint summary

• He was not provided with details of the calculation used to determine the uplift of his Equitable Personal Pension Plan (the Equitable Plan) when it transferred from Equitable Life (Equitable) to Utmost.

• There was insufficient information to allow him to decide whether to retain the Utmost Plan or transfer his benefits to another provider.

• There was insufficient information about the new unit-linked Utmost Funds (the new funds) to allow him to decide in which funds to invest.

Background information, including submissions from the parties

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• Three types of new funds would be available: (i) a range of three risk-rated Multi- Asset Funds, (ii) Investing by Age, a combination of three funds, which gradually reduced risk over time, and (iii) a range of 10 self-select funds.

• For policyholders who did not make a fund choice, the default investment would be the Secure Cash Investment for six months, and then a gradual switch to Investing by Age over the following six months.

• Risks, investment horizons and policyholders’ financial needs and goals were described. Four policyholder case studies were shown as examples.

• Investing by Age was described in more detail, including how the strategy gradually changed over time.

• Policyholders who chose their own new funds by 13 December 2019 would initially be invested in the Secure Cash Investment. They then had the option to decide how quickly they would be switched from the Secure Cash Investment to their new funds, over one, three or six months. Benefits and risks of each option were set out.

• The new funds’ Annual Management Charges (AMCs) were either 0.5% or 0.75%, and further information was referenced as being available in the Part 2 booklet. It stated that the only cost not included in the AMCs were transaction costs for buying and selling underlying assets in each new fund. These would be disclosed to policyholders each year after the funds were launched, but the booklet provided estimated ranges of these costs for each fund type.

2 CAS-54844-H0X2 • Information on how to obtain help and financial advice. There was a telephone helpline made available, operated by JLT Wealth Management Limited (JLT), to provide policyholders with factual information. Subsidised financial advice was also made available to policyholders from Hargreaves Lansdown, up to 13 December 2019.

• The self-select funds were split into five investment types, and the risks and expected level of returns for each type were described, although expected returns were not quantified.

• Diversification and how to choose fund types were described.

• Risk warnings for each new fund were set out.

• The three Multi-Asset Funds and 10 self-select funds were described in more detail, including their AMCs and the names of each of the underlying J.P. Morgan Asset Management (JPM) funds.

• JPM’s capabilities as the underlying investment manager were described.

• The generic term “unit-linked” was described.

• It confirmed that there would be no charges for switching between funds.

• There was a glossary of terms.

• Utmost would launch the new funds on 1 January 2020, and they would invest in underlying JPM funds that were launched in September 2019 with an initial price of 100p.

• The new funds would be investment links and not regulated funds, therefore Key Investor Information Documents (KIIDs) were not required, but the underlying JPM funds did have KIIDs, which were available on the Equitable website.

• Page 15 of the booklet “Part 1: Key information about your investment options” explained the transaction charges of the fund types.

• The new funds would not have entry or exit fees and no performance related fees. 3 CAS-54844-H0X2 • The objectives of the new funds were set out in section 3 of the booklet “Part 2: Detailed information about fund choices”. The objectives and risk profiles of the new funds were compared to the underlying investments in JPM, and Aberdeen Standard Investments, the existing Equitable investment manager.

• Utmost’s fund selection process did not involve funds having to be in the Hargreaves Lansdown Top 50 or Money Observer 200+ list of funds.

• As the new funds were not launching until 1 January 2020, they had no past performance.

• Equitable’s current unit-linked funds would be renamed and become Utmost funds. These funds already had factsheets and past performance track records.

• On 1 January 2020, With-Profits Fund policyholders would be switched into the Secure Cash Investment, which was guaranteed not to go down, and policyholders could then switch to other funds at any time.

• He requested a transfer form and his uplifted policy value.

• He complained that there had been no information provided about the JPM funds that would allow a reasonable person to make an investment decision.

• He had expected to be given information on the new funds, such as: yields, unit prices, prospectuses, manager information, commentators’ ratings, and costs. He wanted to judge whether the new funds’ yields net of costs would exceed inflation.

4 CAS-54844-H0X2 • He had not been able to make use of the subsidised advice from Hargreaves Lansdown, as there had been insufficient fund information available before the 13 December 2019 deadline.

• He wanted to know why the underlying JPM funds had AMCs of 0.04%, but Utmost’s charge was 0.75%.

• It understood Mr N’s frustration in respect of the lack of information about the new funds. Monthly factsheets for the existing Equitable unit-linked funds would be published on Utmost’s website, the first one being available at the end of January 2020. Monthly factsheets for the new funds would also be published, the first one being available by the end of February 2020. In the meantime, current fund prices were available on the website. Because of this lack of information, policyholders’ proceeds from the With-Profits Fund were initially invested in the Secure Cash Investment.

• The reasons for JPM’s selection were set out.

• All fund costs, except transaction costs, were included in the AMCs. Utmost considered the AMCs to be fair and comparable to similar funds.

• On 31 December 2019, Mr N’s policy was valued at £97,185.02 with a guaranteed value of £93,292.40. The uplift was expected to be at least £23,000.

• He had taken information from Equitable’s 31 December 2018 Report and Accounts, the latest available at the time, and determined that his policy value after the uplift should have been £135,189.27. He stated his methodology as follows:

“Mr N’s policy value after uplift = ((Total assets of the With-Profits Fund - assets to cover linked liabilities - reinsurers share of technical provisions – creditors - provisions for other risks and charges - accruals and deferred income) / total With-Profits policy values before uplift) x Mr N’s policy value before uplift.”

• Utmost had not answered his questions. In particular, there was still a lack of information about the new funds, and Utmost had not provided a detailed breakdown of how his uplift had been calculated.

5 CAS-54844-H0X2 • More information should be provided on the new funds, including the provision of prospectuses, which should show how the funds were expected to perform, and whether or not they would receive the same yield as other established funds.

• As Utmost was a regulated firm, it had a mandatory duty to provide policyholders with clear information to ensure that the new funds would meet their needs. Mr N referred to the Financial Conduct Authority (FCA) handbook and "PRIN 2.1 The Principles". He said that Principle 6 - Customers' interests, Principle 7 Communications with clients, Principle 8 - Conflicts of interest, and Principle 9 - Customers relationships of trust, were particularly relevant.

• He did not believe that Utmost had met Principle 7.

• He also said that there was a conflict of interest between Utmost needing to meet its commercial objectives and him wanting to receive growth on his pension.

• He repeated his request for his uplift calculation and information on the new funds.

Mr N received an introductory letter from Utmost, Letter A, dated February 2020. It stated that Mr N’s policy value on 1 January 2020 before the uplift was £70,995.13, his uplift was £59,773.94, being 84.19442% of his policy value, giving a total policy value of £130,769.07. The letter confirmed that his policy would gradually switch from the Secure Cash Investment to Investing by Age, starting on 1 July 2020.

• Mr N’s policy had received an uplift of £59,773.94, replacing the previous 35% Claims Enhancement Factor (CEF) and increasing the value of his policy to £130,769.07 on 1 January 2020.

• The basis for calculating the uplift had been subject to considerable scrutiny by management, the Board and independent experts, as well as the Regulators and the High Court. External assurance by an independent third party had also been provided.

• The calculation of the uplift had been complex, with different policyholders receiving different amounts, depending on the value of their guarantees. A detailed explanation of the calculation had been provided in the “Decision Pack”.

• Utmost did not consider that providing Mr N with a detailed breakdown of his calculation was necessary, nor would it be good use of the time of its specialist staff who would need to be involved.

• Utmost was still not able to provide further information about the new funds.

6 CAS-54844-H0X2 • Equitable’s 31 December 2019 Report and Accounts would be prepared in accordance with the UK financial reporting framework, Financial Reporting Standards (FRS)102, and would be audited by PwC. It would include disclosures to meet the relevant requirements.

• The distribution of the With-Profits Fund took place on 1 January 2020, which was after the Balance Sheet date, but the impact of the distribution and transfer would be explained in Post Balance Sheet Event reporting. The Report and Accounts would consider the business as a whole and would not show how individual member’s uplifts had been calculated.

• The Report and Accounts needed to be filed with Companies House before September 2020, and therefore would be available to Mr N before that date.

• Utmost should provide greater detail about the With-Profits Fund distribution in the 31 December 2019 Report and Accounts.

• He said that there were discrepancies in valuations provided by Utmost:-

i) The letters dated 24 February 2020 and February 2020, both showed a value of £130,769.07, but the letter dated 14 January 2020 had a value of £130,782.15.

ii) The letter on 23 December 2019 showed a value on retirement including the 35% CEF of £97,133.73, so, before applying the CEF, he calculated the value to be £71,950.91. But the letter dated February 2020 had an equivalent value of £70,995.13.

• These discrepancies made him uncertain about all of Utmost’s valuations, including its uplift calculation.

After the 31 December 2019 Report and Accounts had been published, Mr N recalculated his policy value with updated information. He determined that the shortfall in his uplift based on this information was £8,138.77 on 1 January 2020.

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• Utmost had no integrity, had failed to have regard to the interests of its customers and to treat them fairly, had failed to pay due regard to the information needs of its customers and communicate information to them in a way which is clear, fair and not misleading. He believed that these failings should be reported to the relevant regulatory body.

• The methodology he used for his uplift calculation was correct, as he had discussed it with Equitable’s Chief Executive and Chief Actuary in 2018 and 2019. Mr N submitted that they had used the same methodology to demonstrate to him how the uplift would be calculated.

• The “Investment Choice Pack” was very “basic” and “useless” for making an informed decision on the new funds. He also said:-

i) Part 1 booklet had given some information on AMCs, but not Total Expense Ratios (TERs), which he thought were more relevant and would include management fees and additional expenses, such as trading fees, legal fees, auditor fees, plus other operational expenses.

ii) Part 2 booklet was “very generic”, and “no way anyone could actually financially access the investment offerings on these pages”.

iii) The information he had asked Utmost for in his letter on 1 January 2020 was not included in either booklet.

• As the methodology for the uplift was subject to the court sanctions proceedings, in line with section 146(6) of the Pension Schemes Act 1993, TPO could not accept a complaint disputing the methodology for the uplift which the High Court had already approved.

• But the High Court had not considered the specific uplift applied to Mr N’s policy. Therefore, TPO could investigate his complaint.

8 CAS-54844-H0X2 • In the High Court, the Judge stated that “I consider that the efforts made by Equitable to provide a summary of the material information, in the Explanatory Booklet sent to policyholders, were sufficient to enable policyholders to acquire a reasonable understanding of the proposal” (paragraph 120 of the judgment [2019] EWHC 3336 (Ch)).

• At the time Mr N requested his uplift calculation, the Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013 SI 2013/2734 (the Disclosure Regulations) applied. Regulations 10, 17, 18, 21, and 23 set out the disclosure obligations, but these only applied in certain circumstances for personal pensions and were not relevant to the Utmost Plan.

• Given the provisions of the Disclosure Regulations, there would have been no obligation for Utmost to provide the level of detail Mr N had requested about his uplift calculation.

Adjudicator’s Opinion

The methodology of the uplift calculation had been approved by the High Court during 2019, so there is no question that it was valid. However, Utmost decided not to share individual calculations with each policyholder, after the transfer took place on 1 January 2020.

Mr N’s uplift calculation set out in paragraph 21 did not use the same methodology as agreed in the High Court. For example, Utmost’s calculation consisted of two uplifts, the Primary Uplift, and the Secondary Uplift, as set out in the Appendix. The Primary Uplift was applied to policies on a pro-rata basis and consisted of the amount which Equitable would have returned to policyholders over time if it had paid off all of its liabilities + reserves to cover investment guarantees + share of cost savings from the Utmost transfer, an amount for UK Style German policies, and the Secondary Uplift. Mr N did not include these elements in his uplift calculation, so, it would be reasonable to expect that Mr N’s calculation would result in a different uplift to that calculated by Utmost.

The valuations Mr N received from Utmost were consistent but were produced on different dates, so Mr N was incorrect to say that they were inconsistent. For example, the £130,769.07 valuation in the letter dated 24 February 2020 was on 1 January 2020, whilst the £130,782.15 valuation in the letter dated 14 January 2020 was on 14 January 2020. So, he was comparing valuations on different dates. The valuation dates were stated in the two letters, and should have been clear to Mr N.

9 CAS-54844-H0X2 Therefore, Mr N’s assertion that Utmost’s uplift calculation was incorrect, is not based on valid evidence. Furthermore, given the provisions of the Disclosure Regulations, although it may have been helpful for Utmost to have provided Mr N with its uplift calculation when he requested it, Utmost did not have an obligation to do so.

Mr N said that information was missing, such as fund yields, unit prices, prospectuses, manager information, commentators’ ratings, and TERs. In the Adjudicator’s opinion, some of this information was provided to policyholders, but perhaps not in the level of detail Mr N thought was reasonable. For example:

• There was information about the manager, JPM, and the costs of investing in the funds were explained in detail. Utmost referred to the costs as AMCs. Utmost included all costs of running the funds in the AMCs, except for transaction costs, which are costs incurred for buying and selling assets within a fund. So, the AMCs were equivalent to TERs, which also exclude transaction costs. Utmost set out its estimate of transaction costs in the Part 1 booklet, as the funds were new and did not yet have a trading history over which it could measure transaction costs.

• Fund yields are not representative of a fund’s overall return, and although this information can be useful, particularly when an investor wants to draw down the natural income generated by a fund, this is not essential information when selecting a fund.

• A prospectus is not required for units issued by an open-ended Collective Investment Undertaking, such as the new funds, and therefore, Utmost was not obliged to issue them.

• Commentators’ ratings are generally not available until a fund has a meaningful track record and can be reviewed accordingly.

• The funds were not launched until 1 January 2020, therefore, knowing how the unit prices had changed over such a short period of time would have had limited value to an investor.

The booklet “Part 2: Detailed information about fund choices” set out the asset classes and benchmarks for each of the new funds, and the names of the underlying JPM and Aberdeen funds. It also set out fund charges, described the relevant risks and assigned risk ratings to each of the new funds.

Overall, the “Investment Choice Pack” contained an adequate level of information to protect the interests of policyholders and to allow them to make an informed decision on which funds would be appropriate for their needs.

10 CAS-54844-H0X2 Under section 146 of the Pension Schemes Act 1993, the scope of TPO’s investigation was restricted to the facts of Mr N’s complaint and whether Utmost provided him with sufficient information to enable him to make a decision. The Pensions Ombudsman (the PO) did not have jurisdiction to extend the investigation to other general instances, such as whether Utmost met the requirements of the FCA handbook in respect of providing appropriate fund information to policyholders.

Mr N did not accept the Adjudicator’s Opinion and the complaint was passed to me to consider. Mr N provided a detailed response to the Adjudicator’s Opinion. His relevant comments are summarised below:-

• He maintained his understanding that Utmost had been required to send policyholders their individual uplift calculations. He believed that this was in accordance with the High Court of Justice hearing on 4 December 2019, reference CR-2019-004715.

• He continued to believe that Utmost’s calculation of his uplift had been incorrect.

• He and the other policyholders had paid for the calculations to be carried out, as the costs had come out of the With-Profits Fund.

• Utmost had acknowledged in its letter to Mr N on 10 January 2020 that there had been limited information available on the new funds.

• Fund factsheets had not been on Utmost’s website before the end of February 2020, despite Utmost saying that they would be in its letter to him on 10 January 2020.

• He had been forced to transfer his Utmost Plan to another pension provider, as his complaint had not been dealt with properly.

I have considered Mr N’s comments, but they do not change the outcome. I agree with the Adjudicator’s Opinion.

Ombudsman’s decision

I empathise with Mr N in so far as Utmost’s uplift calculation had resulted in a lower value than his own calculation, and so he wanted to see a copy of its calculation, which it refused to do. He has submitted that he had a right to see it, as this had been granted at the High Court of Justice hearing on 4 December 2019, reference CR- 2019-004715. 11 CAS-54844-H0X2

12 CAS-54844-H0X2 I do not uphold Mr N’s complaint.

Anthony Arter CBE

Deputy Pensions Ombudsman 13 April 2023

13 CAS-54844-H0X2 Appendix

The Uplift Calculation – extract from the “Decision Pack – Explanatory Booklet Part B”

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