Legal and General Assurance Society Limited · DRN-6065333

The complaint Mrs M complains that annuity payments she is receiving from Legal and General Assurance Society Limited (“L&G”) have arisen from pension savings that were partly funded by contributions rebated as a result of her being contracted out of the State Earnings Related Pension Scheme (“SERPS”). Mrs M complains that the annuities arising from those rebates were protected rights and so should benefit from annual increases. What happened Mrs M held a personal pension plan with L&G. The documentation produced at the time showed this plan as being opened in October 1988, although a handwritten amendment appears to have been applied to alter that date to June 1990. I don’t know when, or why, that amendment was made. The documentation indicates that a rebate of National Insurance Contributions would be paid to the pension plan by the DHSS. Mrs M used the funds held in the pension plan to purchase two annuities. The first annuity was purchased in July 2002. The remainder of Mrs M’s pension savings in this plan were used to purchase a further annuity in May 2006. Neither annuity was set up to receive any annual increases in value. L&G says there is no evidence that the funds held were protected rights and so are not required to benefit from annual increases. Mrs M complained to L&G that no increases were being applied to her pension savings. At first L&G said it no longer held any information about Mrs M’s pension plan – it said its records and responsibilities had been transferred to another firm in 2020. But it later accepted that it retained information about Mrs M’s pension plan and was responsible for dealing with her complaint. L&G told Mrs M that it held nothing to indicate that either of the annuities should receive annual increases in their value. It said that when the annuities were purchased Mrs M chose for the value of the annuities purchased with non-protected rights funds to not increase each year. It said the application forms indicated that no protected rights funds were contained within the pension plan. Unhappy with that response Mrs M brought her complaint to us. Mrs M’s complaint has been assessed by one of our investigators. He thought that there was sufficient evidence to conclude that Mrs M’s pension plan had received monies arising from Mrs M being contracted out of SERPS. So he thought those contributions should be treated as protected rights and so benefit from annual increases. He asked L&G to calculate what those increases should have been and compensate Mrs M by paying her the annuity income she had missed, and correcting the annuity for the future. He also asked L&G to pay Mrs M £300 for the inconvenience she had been caused. L&G didn’t agree with that assessment. So, as the complaint hasn’t been resolved informally, it has been passed to me, an ombudsman, to decide. This is the last stage of our process. If Mrs M accepts my decision, it is legally binding on both parties.

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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. In deciding this complaint I’ve taken into account the law, any relevant regulatory rules and good industry practice at the time. I have also carefully considered the submissions that have been made by Mrs M and by L&G. Where the evidence is unclear, or there are conflicts, I have made my decision based on the balance of probabilities. In other words, I have looked at what evidence we do have, and the surrounding circumstances, to help me decide what I think is more likely to, or should, have happened. At the outset I think it is useful to reflect on the role of this service. This service isn’t intended to regulate or punish businesses for their conduct – that is the role of the Financial Conduct Authority. Instead, this service looks to resolve individual complaints between a consumer and a business. Should we decide that something has gone wrong we would ask the business to put things right by placing the consumer, as far as is possible, in the position they would have been if the problem hadn’t occurred. When Mrs M’s pension plan was first set up, it appears that there was an intention for it to receive rebates of her National Insurance Contributions that would be paid to the pension plan by the DHSS. It was relatively common around that time for that sort of arrangement to be put in place. At this stage L&G hasn’t shared any information with us about the value of those rebates, or any other contributions that Mrs M made to the pension plan. Mrs M has been extremely diligent in gathering information to support her complaint that, at least some of, the contributions made to her pension plan arose from National Insurance rebates. Given the time that has passed the information that DWP has provided to her has been a little muddled. But when considered as a whole, as I will set out now, I am satisfied it presents sufficient evidence that Mrs M’s pension plan received these rebates. I have shared that information with L&G, but it has failed to respond to my request for its comments on the evidence. The evidence that HMRC has provided to Mrs M has been consistent in that it showed she was contracted out of SERPS between April 1988 and April 1995. The first document that Mrs M was sent explained that during that time benefits were paid to a personal pension scheme held with another provider. But it correctly noted the rebates were paid with a reference number that corresponds to the pension plan reference of the plan Mrs M held with L&G. Mrs M has appended a handwritten note to that letter to confirm a conversation with HMRC during which it was confirmed the provider was actually L&G. And that information was later confirmed by letter showing L&G as having liability for Mrs M’s contracted out benefits during the period of 1988 to 1995. As I said above, I shared that information with L&G and asked for its confirmation whether it now accepted Mrs M held contracted out benefits in her pension plan. But, despite an extension of time being provided, L&G failed to respond to that request. I’m sure I don’t need to remind L&G of its regulatory responsibilities to provide evidence to this Service. And the regulator’s rules explain that should a response not be provided it is reasonable for me to continue with my consideration of the complaint based on the evidence that I hold. So, in the absence of any contradictory evidence or representations I share the investigator’s conclusions that the pension plan held by Mrs M received rebates of her National Insurance contributions. I think her pension plan was what was known as an appropriate personal pension (“APP”) and so authorised by HMRC for use as a vehicle for employees to contract out of SERPS.

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The contracted-out monies that the APP held were known as protected rights. The funds generated from personal or employer contributions are known as 'ordinary benefits', 'excess benefits' or non-protected rights. In addition to the usual HMRC rules on what benefits could be provided by registered pension schemes, there were special DWP rules setting out the benefits that had to be provided from the protected rights fund when an annuity was bought or on the member's death. Those are reflected on the application form that Mrs M was sent when she purchased the annuity – namely that her protected rights benefits must be increased each year by 3%. I find the evidence I have before me to be compelling that at least part of the pension savings that Mrs M held in this plan were to provide protected rights benefits. As such I think L&G has failed to treat Mrs M fairly when it miscategorised at least some of her pension savings as being non protected rights and provided her with an annuity with no annual escalations. So, I think L&G needs to put things right. I accept that my directions below might present some difficulties for L&G where contribution information might not be available. But it is important that those contributions L&G received as rebated National Insurance contributions are treated correctly. Should L&G be unable to determine what proportion of contributions to Mrs M’s pension plan are of that nature, I think it has little option than to treat all her pension benefits as arising from protected rights and calculate any compensation on that basis. There is little doubt that Mrs M’s more recent dealings with L&G about this complaint will have caused her some distress and inconvenience. At first, she was told she needed to contact another firm about her complaint. But only through her diligence and persistence was she able to identify that L&G was responsible for what happened after all. And I have seen that Mrs M suffers from a serious medical condition that is likely to have been made worse by the stress of this situation. But, as our investigator has explained to Mrs M, the awards we would generally made for any distress and inconvenience are relatively modest. Our investigator thought that a payment of £300 would be fair and reasonable compensation in this regard. Having carefully considered everything that has happened and thought about awards that I have made in similar circumstances, I am satisfied that the investigator’s recommendation is reasonable. Putting things right As I have explained, I think there is sufficient evidence to reasonably conclude that at least part of the pension savings used by Mrs M to purchase annuities in 2002 and 2006 comprised protected rights. So, I think, at least part of, the annuities she purchased should have included annual escalations at a rate of 3%. So, to put things right, L&G should do the following; • Identify the proportion of the pension contributions paid into Mrs M’s pension plan that arose from National Insurance rebates. Should L&G be unable to determine that amount, and provide evidence to Mrs M of its calculations, it should treat all of her pension savings as being of that nature. • On the basis of its calculations of the proportion of pension savings being protected rights L&G should establish what changes would have arisen in the annuity quotations that were provided to Mrs M. • L&G should effectively reconstruct on a cashflow basis the notional annuity income it would have paid to Mrs M reflecting any changed annuity amounts and the annual

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increases. If the total value of the notional income is greater than the actual income that has been paid Mrs M has suffered a loss. L&G should pay Mrs M compensation equal to the difference between the notional income and that she has actually received. In making that calculation, I think it reasonable for L&G to assume in the calculations of the notional annuity income that Mrs M would be a basic rate taxpayer. L&G should add simple interest at a rate of 8% per annum to any shortfall in the monthly payments, from the point at which the total notional payments exceed those that have actually been made. Interest should be paid on each of these monthly shortfall amounts from the date they should have been paid to the date of settlement. HM Revenue & Customs requires L&G to take off tax from this interest. L&G must give Mrs M a certificate showing how much tax it’s taken off if she asks for one. • Should the notional total be less than the income Mrs M has actually received L&G should explain that to Mrs M in a clear and easily understood form. Mrs M should indicate to L&G whether she wishes any changes to be made to the annuities she is receiving. Should Mrs M agree to the revised annuities (including the annual escalations) L&G should decide whether it wishes to seek the repayment of any difference and if appropriate agree a repayment plan with Mrs M. • Where the notional total is greater than the actual amount paid to Mrs M, or she decides to accept the revised annuity terms, L&G should provide Mrs M with an additional annuity such that the income she receives in the future takes account of any additional sums she would be due had the required 3% increases been applied to any annuity purchased with the protected rights contributions. • L&G should pay Mrs M £300 for the distress and inconvenience she has been caused. My final decision My final decision is that I uphold Mrs M’s complaint and direct Legal and General Assurance Society Limited to put things right as detailed above. Under the rules of the Financial Ombudsman Service, I’m required to ask Mrs M to accept or reject my decision before 9 April 2026. Paul Reilly Ombudsman

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