Phoenix Life Limited · DRN-6250557

The complaint The trustees of what I will refer to as the H 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 H has corresponded with us though, so I’ve largely referred to him and Mrs H throughout for ease. What happened I've outlined what I think are the key events and points involved in the complaint below. In 1990 Mr and Mrs H took out a reviewable whole of life policy – that Phoenix Life is now responsible for and which I will refer to throughout – where the monthly premium was £50 for a sum assured of £125,000. I understand that the policy reviews ‘passed’, requiring no changes to the benefits, until the 2024 review which ‘failed’. This review letter said, in bold, that Mr and Mrs H’s premiums weren’t sufficient to maintain the policy benefits, they needed to take action to either increase these or reduce the sum assured and it’s possible further changes would be necessary in future. The letter said the policy’s current fund value was just over £11,100. And, to maintain the benefits until the next review, Mr and Mrs H were given the option to increase the monthly premium to just over £286 to maintain the sum assured, or to reduce this to just under £84,500 for the existing premium (the default option). The enclosed FAQs said, amongst other things, that if a review confirms the current premium isn’t sufficient then Mr and Mrs H are given the opportunity to take action to 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. And that if the policy has a negative value or it can see this will happen in future, it will recommend action and explain the 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 do so in future. That if a reduction in benefits is required now then a further change might be necessary in future. And Mr and Mrs H were invited to let Phoenix Life know if they wanted it to estimate the premium that would be sufficient to maintain the benefits for life. In April 2024, Mr and Mrs H returned the review option form choosing to reduce the sum assured to just over £84,500 for their existing £50 premium. Mr H later went on to complain to Phoenix Life about the 2024 review outcome and letter. And, in response and across its correspondence with Mr H and our Service Phoenix Life said, in summary, that: • The policy fund value is subject to market fluctuations and impacted by various economic conditions. And its projections rely on historical data and assumptions that might not always align with actual performance.

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• The cost of cover is dependent on a number of factors and increases with age. • Policy reviews are carried out in line with the policy terms and conditions to determine whether changes are required to maintain the policy benefits. • It should have let Mr and Mrs H know from around 2012 though that the policy costs were now exceeding the premiums and it recognised its review letters didn’t provide them with enough information to make an informed decision. However, having spoken to Mr H, it wasn’t persuaded they would have done anything differently in that case and it understood the policy need has continued. But it offered Mr and Mrs H £500 in compensation to make up for the upset caused on receipt of the 2024 review letter and time taken to resolve the complaint. Unhappy with this, Mr H came to our Service. And across Mr H’s correspondence with Phoenix Life and our Service he said, amongst other things, that: • They weren’t prepared to accept Phoenix Life’s offer of £500 in compensation. • They took out the policy for their family protection and Inheritance tax purposes. • The 472% increase in monthly premium or otherwise a reduction in cover of around 32% is unacceptable and should be challenged after being told for around 30 years that there were no problems with the policy. He fears all future reviews will be similar and that, while the only answer would be to surrender the policy, not when the fund value is only around £10,000 and when they’ve paid premiums over £20,000. • He asked Phoenix Life what events occurred during the last three years since the 2021 review to justify the above, with no explanation, and when the policy premiums and benefits were always stated as guaranteed. Our Investigator explained how reviewable policies such as Mr and Mrs H’s work and why this can mean that, as at the 2024 review, significant decreases in the sum assured or increases in premium can be required. They said Phoenix Life didn’t provide them with clear, fair and not misleading information about the policy costs versus the premiums paid, for example, when it should have around the tipping point – when overall policy costs first exceeded the premiums paid – in 2012. And they thought that, if it had, Mr and Mrs H would have increased their total monthly premium to £100 from around mid-2013. So they said Phoenix Life should reconstruct the policy on that basis from then and reissue the 2024 review for Mr and Mrs H to see what options they would have had in that case. Our Investigator also said the £500 in total compensation Phoenix Life had offered – for not providing the information it should have sooner after the tipping point was reached and for the surprise on receipt of the 2024 review letter – was a fair amount in the circumstances. Phoenix Life didn’t agree. It said, in summary, that the assumption Mr and Mrs H would have increased their monthly premium by £50 is too subjective given the passage of time, the policy would likely still have failed future reviews due to the increased costs of cover with age and they didn’t agree that it was likely this is what Mr and Mrs H would have done. Phoenix Life maintained that it wasn’t persuaded they would have taken a different course of action if it had provided them with the information it should have and sooner. As no agreement could be reached, the complaint was passed to me for a decision. And I let Mr H know my provisional thoughts – which are largely set out again below – which explained that I didn’t intend to ask Phoenix Life to do anything. Mr H didn’t accept this. He added, in summary, that he agrees they wouldn’t have considered surrendering the policy, but he doesn’t know or understand how I can say they wouldn’t have done anything differently. Mr H said that in 2012 he was retired, but doing some part time work, and if the information they should have been provided with had been explained by phone rather than in the middle of a letter with language usually used by

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businesses to hide bad news, then they would have increased the premium. And Mr H said that the fact Phoenix Life has offered £500 is an admission that all wasn’t right with its management of the policy. 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. And, having done so, while I understand Mr H and Mrs H will be disappointed, I’m not asking Phoenix Life to do anything for largely the same reasons as those set out in my provisional thoughts, which I’ve repeated again below. While I’ve carefully all the submissions provided, my decision focuses on what I consider to be the central issues. 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. And I’ve looked at what evidence we do have to help me decide what I think is likely to, or should, have happened in the circumstances. In deciding this complaint I’ve taken into account the law and regulations; regulatory rules, guidance and standards; codes of practice; and (where appropriate) what I consider to have been good industry practice at the relevant time. And this also includes: • 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) 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). Mr and Mrs H’s policy terms explain, for example, that it is reviewable and that if the premium is insufficient to cover the policy costs to maintain the benefits then the sum assured can be reduced. So Phoenix Life is entitled to review the policy, in the way it did. I can’t see that Phoenix Life provided any guarantees in the policy documentation. And I’ve seen no evidence that the requested changes weren’t a legitimate exercise of Phoenix Life’s commercial judgement. It was entitled to take a reasonable view of the risk posed to it and put a price on that. And I think it has done so following a typical process, run by industry professionals. I think it’s helpful to explain how the plan works though. Part of the premiums Mr and Mrs H were paying were invested to pay for the increasing costs of cover later in life, as these increase as the policyholder gets older with this type of policy. The effect of such costs on a policy value is an inevitable consequence of these becoming more expensive with age and it allows these to be more affordable at the outset. But, if premiums remain the same, at some point the costs of cover will exceed these and units in the investment fund need to be sold to meet the shortfall. Eventually, increases in the cover costs outpace the fund growth and the business will decide that, to maintain the cover level, substantial additional premiums need to be paid as the life cover costs increase with age, unless the sum assured has been substantially reduced. At this point, any premium increase is likely to be very expensive and when the consumer may have limited means to meet these. Or, if the level of cover has reduced substantially, the policy may no longer meet their objectives or be cost-effective. The impact of such sudden and significant changes can be mitigated by adjusting the terms of cover earlier. If a consumer elects to increase premiums this will have a smoothing effect,

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so that such significant increases down the track might be avoided. In that case, the premiums will be higher than at the outset, but not as high as these would have otherwise later needed to be. Alternatively, the consumer might decide to surrender the policy or decide it’s worth keeping without increasing the premium. Given the impact of increasing cover costs though, the opportunity for a consumer to make such decisions is a key event in the policy life. It’s in their interest to make these at an early stage and for them to do so in an informed way businesses need to provide them with clear, fair and not misleading information. Increasing life cover charges and what should Phoenix Life have told Mr and Mrs H? In Mr and Mrs H’s particular case, based on the available evidence the annual costs of cover have been exceeding his premiums since mid-2012, when the monthly cost of cover rose to just under £53, which was more than the existing £50 monthly premium. This meant that, in policy year 2012/2013, Mr and Mrs H’s policy had reached an important ‘tipping point’, or key point in the policy’s life cycle, for their interests and information needs, as there was a significant risk substantial increases in premiums or reductions in the sum assured would be required in future. And, 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 and Mrs H to evaluate the impact of the increasing costs of cover on the policy and the options available to them 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 mid-2012. By giving Mr and Mrs H clear information about how much the policy was costing and allowing them 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 and Mrs H? Within a reasonable timescale after the tipping point was reached, Phoenix Life had an opportunity to provide Mr and Mrs H with clear information to enable them to consider their 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 and Mrs H, together with the costs and benefits as well as time frames for reply. Phoenix Life should have provided sufficient and clearly explained details to appreciate how much the policy was costing and that the gap between the premium and the charges had closed, for example, for them to make an informed decision. And not in a passive way that required the consumer to draw important inferences for themselves. Even if precise numerical information about the

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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 they could reasonably appreciate the importance of considering their options at that point. It isn’t in dispute that Phoenix Life failed to provide Mr and Mrs H with this type of information in its correspondence – it has accepted that it didn’t. And, for completeness, I can’t see that they were given an explanation that the policy costs were higher than the premiums being paid, or any illustrative examples to know the impact of deductions on the plan and what additional premium was needed to make the existing level of cover sustainable for life, for example. So, I think there was an imbalance of knowledge between Mr and Mrs H and Phoenix Life, which meant they couldn’t make a fully informed decision about what steps they wanted or needed to take following the tipping point being reached. But, despite Phoenix Life having failed to show it provided sufficient information to Mr and Mrs H as part of earlier review correspondence, I don’t think that if it had done so sooner, and at or around the tipping point in 2012, that this would likely have led to them taking any different action. I’ll explain why. What, if anything, would Mr and Mrs H have done differently? Had Mr and Mrs H been given clear, fair and not misleading information, the options open to them at that point would have been to surrender the policy for the cash in value, pay an additional premium to maintain the sum assured, reduce the sum assured or take no action. On balance, having considered all the available information to decide what, if anything, I think Mr and Mrs H would likely have done in the circumstances if Phoenix Life had provided them with the information it should have sooner, for the reasons I’ve set out below, I’m not persuaded that they’d likely be in a different position now in order for me to ask it to do anything. It isn’t in dispute that Mr and Mrs H would have kept the policy, in the way they have. For completeness though, in or around 2012 the policy surrender value at around £15,000 was less than the total amount paid in premiums to date and much less than the existing sum assured of £125,000. So, given the relatively low surrender value, Mr and Mrs H’s ages and the size of the sum assured at the time, I don’t think that they’ve likely to have surrendered the policy if they’d been given further information. And I think this is supported by Mr H’s comments that they still need the cover for inheritance tax purposes. And I’m not persuaded Mr and Mrs H would likely have paid more in premiums for the policy either. I say this because, while Mr and Mrs H weren’t given all the information they should have been around the tipping point in 2012, I can see they’ve been given some information since about what might happen to the policy in the future. For example, while the 2018 and 2021 reviews ‘passed’ with no changes required, both letters clearly showed the policy fund value was decreasing, these said that since the cost of providing benefits rises with age their cost of cover might already exceed their premium and it’s possible increases in premium or reductions in benefits will be necessary at the next review. And, under ‘What might happen in future’ on just the second page of the letters, both clearly set out that: ‘We have looked at what might happen if the premiums and charges on your policy continue as they are now into the future. Based on this, we estimate your policy may not be able to support your level of protection benefits from about June 2024…this date is just an indication and cannot be guaranteed, however we hope you find this information useful for future planning. If your policy can not support the level of protection benefits then an increase in premium or reduction in protection benefits would be required at that time.’ (my emphasis in bold).

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But, despite being given some information in these letters for Mr and Mrs H to be reasonably aware their existing benefits were only estimated to be sustainable until 2024 based on their current premium, no action was taken at those times to make the policy more sustainable, such as increasing the premium. In which case, I can’t be satisfied Mr and Mrs H would have done anything differently if they’d been given more information sooner about how their policy might fare in future. Mr H thinks Phoenix Life should have explained this information by phone, rather than letter. But it’s reasonable for Phoenix Life to correspond via letter, Mr and Mrs H could have contacted it for more information and I think the information I’ve referred to above in the 2018 and 2021 review letters was set out clearly enough. And, while I appreciate Mr H previously told us that with the benefit of hindsight they probably could have afforded a further £50 per month, he also went on to say that in conclusion and without the benefit of hindsight, had Phoenix Life approached them in or around 2012 proposing to double their premium to protect the policy benefit, he ‘...may well have told them where to go!’, further indicating to me that Mr and Mrs H wouldn’t have increased their premium. And I note that Mr and Mrs H allowed the sum assured to reduce following the 2024 review, rather than increasing their premium to try to sustain the policy then if they'd wanted to. In addition, at or around the time of the 2012 tipping point, the policy would likely still have been forecasted to last at a sum assured of £125,000 that would meet Mr and Mrs H’s needs for many years, in the way it did until the 2024 review, and that it would then likely still continue to provide a relatively high level of cover at £85,000 for the premium. So, for these reasons, I don’t think Mr and Mrs H would have paid more in premiums than they have. Instead, I think they’d have likely continued with the policy, in the way they have and despite the 2024 reduction in the sum assured, on the basis they still see the value in it. In summary, while I appreciate Mr and Mrs H’s position and strength of feeling, I don’t think they would likely have done anything differently had Phoenix Life given them more of the information it should have and sooner. And this means I’m not asking it to do anything in respect of their policy. I understand Phoenix Life offered £500 in total compensation for the surprise Mr and Mrs H experienced on receipt of the 2024 review letter and for not providing them with the information it should have sooner. But this isn’t something I’d usually ask Phoenix Life to pay compensation for in the circumstances given that, for the reasons explained above, I think Mr and Mrs H (and the H Trust) would likely be in the same position now if it had done that. And I’m not asking Phoenix Life to do anything here. My final decision For the reasons set out above, I’m not asking Phoenix Life Limited to do anything. Under the rules of the Financial Ombudsman Service, I’m required to ask Mrs C, Mr H, Mrs H and Mr H as trustees of the H Trust to accept or reject my decision before 22 April 2026. Holly Jackson Ombudsman

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