Phoenix Life Limited · DRN-6039502

The complaint Ms M complains that Phoenix Life Limited trading as Standard Life mistakenly paid her the entirety of her pensions with it when she requested 25% as tax-free cash. She says she has suffered a loss in terms of the growth she would have received and the tax she paid. What happened Our investigator set out the background to this complaint in her letter of recommendation, for ease of reference I have included an amended copy of this below: On 14 September 2022 Ms M called Standard Life to withdraw a 25% tax-free lump sum from her two pension plans with it. As these older style plans did not offer flexible withdrawals, they needed to be transferred to a new pension plan. Therefore, Standard Life set up a new Active Money Personal Pension. On 1 October 2022 Standard Life sent a letter confirming the transfer of Ms M’s first original plan to a value of £4,733.50. On 13 October 2022 Standard Life confirmed the transfer of the second original plan to a value of £77,255.87. On 18 October 2022 Standard Life sent Ms M a letter, advising that her tax-free lump sums (£20,497.33 in total) had been paid. On 18 October 2022, a full encashment of her plan was processed in error. On 19 October 2022 Ms M was sent a letter, confirming the full encashment of the policies. This letter detailed the amount she had taken as income and the tax deducted; it also included a P45 showing the tax code. The amount she was paid was £35,016.20 after income tax. On 8 October 2024 Standard Life informed Ms M that the payment she received on 19 October 2022 had been too low, and they sent her a cheque for £2,442.86. Standard Life apologised and paid any tax due, so she would not need to include this payment in her tax return statement. On 4 April 2025 Ms M’s financial adviser contacted Standard Life to enquire about the full encashment in 2022, informing them that Ms M had never requested to encash her full pension. Standard Life replied on 6 May 2025, admitting their error and provided the letters which were sent in October 2022. The adviser asked Standard Life for a timeline of events. They told Standard Life that Ms M was going through a difficult time in 2022, and therefore she did not notice their error before. A complaint was raised and acknowledged on 13 May 2025. Standard Life sent a final response to the adviser on 3 June 2025, upholding the complaint. They acknowledged that a full drawdown of the pension fund was not part of Ms M’s

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instruction in 2022. They apologised and offered a compensation payment of £300. The adviser replied that they did not raise a complaint; this would be done directly by Ms M. Standard Life reviewed the issues raised and contacted the adviser on 1 July 2025. They said the outcome would remain the same. The compensation offer was for the error they made, but as they were not made aware of this within a reasonable timeframe, they could not consider any further compensation. On 10 July 2025 Ms M raised a complaint with Standard Life, detailing her financial loss caused by their error. Ms M explained that at the time when she instructed Standard Life to withdraw the tax-free cash, she was going through a very difficult time. This impacted her both financially and emotionally, and her mental health was impaired. For this reason, she did not notice the error and therefore could not make Standard Life aware of it. Standard Life issued their final response on 7 August 2025. They confirmed the original outcome and increased their compensation payment to £500. Ms M rejected this offer on 8 September 2025. Whilst the case was with our service, Standard Life informed us that if Ms M was able to return the overpayment of approximately £35,000, it would put the policy back in place as if it had never been encashed and including investment growth. Our investigator looked into matters and felt the offer made by Standard Life was fair. She explained that whilst it had made an error as Ms M didn’t mitigate the situation and tell Standard Life, it lost the opportunity to put it right. And Ms M had now benefited from the additional funds for three years. Therefore she felt the offer to reinstate the plan on the basis of the money being repaid was fair. With regards to the £500 compensation the investigator said this was in line with our guidelines for an error of this sort. Ms M didn’t agree and asked for an ombudsman’s decision. In summary her key points were: • She did not have £35,000 to rectify the error. • The mistake wasn’t hers, so she shouldn’t be held responsible or suffer any loss due to it. • None of this situation was her making and she’d have to borrow to make the repayment which isn’t fair. • Standard Life ought to have realised its mistake in 2024. • It shouldn’t be on her as a non-financially savvy person to double check and notice Standard Life’s mistake. • She was aware money had been paid to her but not that the value was incorrect. • The letters about the payments were sent but she doesn’t have a recollection of receiving them. She was between two homes due to the breakdown in her marriage at the time. She says she wasn’t in a position where she would have understood the contents in any event. • She said she was repeatedly told when asking about how much tax-free cash she would receive that a figure or exact amount could not be provided. So she wasn’t aware how much she would receive from Standard Life. • She was most concerned about the tax and that it should be tax-free as she was a 40/45% tax payer. • No consideration has been made to view the situation from her point of view. The mess is not of her making.

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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. Having done so, I have reached the same conclusion as the investigator that the offer made by Standard Life is fair. Ms M has asked if the mistake was caused by Standard Life, why is there any responsibility on her in terms of the mistake being rectified. Whilst the mistake that has caused this issue was Standard Life’s, it is widely established in law and in our approach to deciding cases such as this, (we have to be impartial take account of the law and ultimately reach a fair and reasonable outcome) that where a customer could have mitigated the situation, they need to do so. Under law the rule of mitigation requires a person to take steps to minimise the loss and to avoid taking unreasonable steps that increase its loss. A wronged party cannot recover damages for any loss which could have been avoided by taking reasonable steps. There is a duty to mitigate the loss. In terms of agreeing with Ms M’s case for Standard Life making good the losses she says it is responsible for; I’d have to conclude that it was reasonable to believe she ought not to have known she’d been overpaid and that Standard Life had made an error. The realities of the situation here are Ms M requested payment of 25% of the policies value. It is a reasonable expectation that going into this she ought to have had a good idea of the policy value, she was sent letters with this confirmed prior to the withdrawal. And having listened to the call before the payment was made – she was told the values of the policy and the tax-free cash amount she could expect to be paid. So, it’s fair to say Ms M would have been expecting approximately £20,000 as a payment. Instead, she received £55,000 in total. An overpayment of £35,000. The starting point here has to be that it is extremely difficult to understand how someone would not realise the £35,000 payment had been received. This alongside the fact Ms M received letters from Standard Life setting out both the original correct tax-free payment and then the overpayment. This clearly showed the value of the whole policy had been paid and that she had incurred a big tax bill – the one thing Ms M was looking to avoid. It is possible Ms M wouldn’t have looked at these letters, though she would have been expecting confirmation by post and acting reasonably she ought to have opened and read them. But that still wouldn’t explain her not noticing a payment of £35,000 that she wasn’t expecting. If she wasn’t relying on confirmation by post, and wasn’t checking her bank account, the question is how would Ms M know whether the payment had been received at all? I note at the time Ms M had chased Standard Life for the payment about a week before it was paid. So at that point in time, she knew it had not been received, either through no confirmation via post – in which case the letters must have informed her the payment had been made or most likely that she could see it had not been received by her bank. A week or so later after being aware that there wasn’t the expected £20,000 in her possession, she then had £55,000 paid to her, £35,000 more than she was expecting. So the circumstances strongly support that Ms M ought to have known she had been overpaid. But I also need to consider what Ms M has said to see whether this explains her not noticing the overpayment. Ms M has said she didn’t know that the error had occurred as she was repeatedly told they could not give her a figure as it was not guaranteed. I’ve listened to the call she had with Standard Life to finalise the instructions. She was asked what she wanted the money for and Ms M said just to spend it. She was asked if she had other pensions, she was able to tell the

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call handler she had a work pension and how much that was due to pay her in retirement. She was also able to tell the call handler she had a smaller pension worth £8,000 and that it would pay her £15 a month. The call handler gave her both of the policy values and the tax- free cash amount. When the call handler said she would tell Ms M the expected tax-free cash amounts, Ms M said to give her a moment so that she could write this down, the call handler gave Ms M the amounts which in total were just over £20,000. She was told these values could fluctuate and weren’t guaranteed. But I don’t think it’s reasonable to believe in less than a month that the total value could increase by around 75%. Ms M was also able to tell the call handler the amount she was contributing to the pension monthly and that she knew it would be cancelled once the policy was moved into drawdown. Listening to the call, Ms M had a good level of understanding of the pensions she had and the values that they would provide. She was told the tax-free cash she could expect and wrote this down. This does not point to someone who wouldn’t have understood what she would be receiving from the plan, or someone who was unable to understand the basics of how pensions work. So I have to consider whether Ms M reasonably ought to have known that she’d been overpaid or not. And the evidence is strongly weighted towards the fact she ought to have known. The evidence shows she knew the amount to expect, she knew when the payment hadn’t been received – and therefore by that same method ought to know when it had been received, she received letters clearly showing the overpayment amount and the tax incurred. And most importantly she would have had over £35,000 at her disposal to spend that she wouldn’t have expected to receive. It’s also a reasonable expectation that a person will have an idea of the amount of money held in their bank accounts, most banks send monthly statements and it is thought that around 75% of the population have a mobile banking app and 88% have online banking. So it is with that weight of evidence that I have to consider whether Ms M ought to have mitigated the situation. To conclude that she has no responsibility for the overspending of the money she was paid in error, would require me to reach the decision that she shouldn’t reasonably have been aware that it had been paid in error. It is very hard to do that in the face of the evidence I’ve seen. I have thought about this from Ms M’s point of view, I appreciate she was going through a divorce, I’ve thought about whether that could mean there were large amounts of money going between accounts – that this would be a stressful time and people are distracted and Ms M has told us she wasn’t in a good mental state at the time. But this wasn’t a small overpayment, I don’t think the circumstances can reasonably explain it not being noticed. And if money was tight at the time as was suggested, it’s even more difficult to understand how the overpayment wasn’t noticed. During a divorce, finances will become more of a focus than usual, and Ms M had some debt at the time, so a sudden unexpected upturn in her bank account balance likely would have been noticed. The evidence doesn’t support that she wasn’t aware of the amounts she was expecting to receive. And even without the call where this was explicitly stated, it isn’t realistic to conclude that somebody requesting a payment from their pension wouldn’t have an idea about how much they would receive. Coming to the offer made by Standard Life, I appreciate not many people will have £35,000 available and so this makes the offer potentially an empty one if Ms M cannot make the repayment. I did ask Standard Life if it would consider another offer where Ms M wouldn’t have to repay the sum but where she would still be placed back in the position she would have been and it said it would not. I suspected as much as there may be HMRC implications to doing so without the money being returned and ultimately, I was not of the view that it should – I asked to try and find a better solution for Ms M rather than believing it needed to make a better offer. I think the offer it has made is fair and reasonable in the circumstances.

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That is not to say Ms M did this with intent but mitigation isn’t just about intent but also taking reasonable steps to mitigate the situation. Acting reasonably Ms M ought to have realised the money had been overpaid. I have asked Ms M for an explanation as to how she didn’t notice as I wanted to try and understand how this could have occurred but I’m afraid after considering her testimony alongside the other evidence, I’m not persuaded by those arguments. So whilst it might not be easy to read for Ms M, I hope that explains the position the investigator and I have taken on this case. I am sorry to hear of the situation she has found herself in and I hope she is able to rectify the situation without too much difficulty. Ms M has asked about the offer made by Standard Life and the specifics of it. We asked for confirmation of the offer and it said: So Ms M would be back in the position she would have been in if the error had not occurred. Ms M has asked questions about this process but how this is achieved is up to Standard Life. It is true the reversal of a pension payment cannot in usual circumstances be carried out after 30 days but there is special consideration for situations where an error has occurred, and the change is made as part of redressing this. With regards to the offer of £500 for the trouble and upset caused, I think this is fair and reasonable in the circumstances. Had the error been noticed by Ms M as you’d expect, the trouble and upset caused would have been limited to the payment being returned. Ms M also received the benefit of that extra money at the time, which she presumably spent. And Ms M says she has only recently learnt of this error, so any impact has been over a fairly short period of time. I appreciate the loss of an income in retirement could have longer term consequences but I’ve explained why I cannot place much weight on that due to the circumstances of the error and the failure to mitigate that error. Putting things right If it hasn’t already, upon notification of Ms M’s acceptance of my decision, Standard Life should pay Ms M £500 for the distress and inconvenience she has suffered. If Ms M wishes to take it up on the offer of re-instatement, she should contact Standard Life to discuss how to make the payment. If the repayment is made, Standard Life then needs to put her back in the position she would have been in, had the overpayment not occurred. My final decision Phoenix Life Limited trading as Standard Life is required to put things right as set out above. Under the rules of the Financial Ombudsman Service, I’m required to ask Ms M to accept or reject my decision before 21 May 2026. Simon Hollingshead Ombudsman

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