The Prudential Assurance Company Limited · DRN-6283184

The complaint Mrs C complains that The Prudential Assurance Company Limited (‘Prudential’) hasn’t fairly honoured the guarantee they gave her in 1999 and 2017 to match the pension benefits she would have received from her defined benefit (DB) workplace pension in retirement. Mrs C lost those DB benefits when Prudential transferred them to a Section 32 bond in 1991. Mrs C’s husband is representing Mrs C in this complaint. I will refer to Mrs C in this complaint even if submissions were made by her husband. What happened Mrs C was a deferred member of the Pearl DB scheme. In 1991 Prudential transferred her pension benefits to a Section 32 bond. In 1994, the regulator initiated an industry-wide Pension Review asking firms to review any pension business carried out between 29 April 1988 and 30 June 1994, because of concerns that consumers had been badly advised to transfer from, opt out of or not join a workplace pension scheme. The Pension Review concluded in 2002. Prudential contacted Mrs C as part of the Pension Review and found that she shouldn’t have transferred her pension. To put things right, they offered her a guarantee that when she retired they would compare her DB benefit entitlements with her actual pension and make sure she wasn’t financially disadvantaged. Mrs C was in contact with Prudential in 2017 asking about the guarantee. Prudential confirmed her losses as of 1 November 1998 as £12,747 and that the income she was entitled to from the DB pension at age 60 was estimated to be £4,237 per year. Mrs C raised a complaint at the time as she wasn’t satisfied with how the benefits had been calculated and raised several questions. The guarantee to match the value of her DB benefits was repeated in 2017. In 2023 as Mrs C was approaching the DB retirement age of 60, Mrs C contacted Prudential again about the guarantee and asked about the benefits she would receive. Prudential did a loss calculation as of 1 April 2023 which stated a loss of £77,915.94. More questions and discussions followed. Mrs C didn’t take her benefits at that point as she felt her questions hadn’t been answered sufficiently. The loss was eventually recalculated as £73,829.96 as of 1 April 2024. An offer of redress was made to Mrs C of £65,495.82 on 23 April 2024. This was calculated as follows: Capital value of lost pension from DB scheme: £115,525.15 Less value of Mrs C’s actual pension: £41,695.19 Less adjustment for notional tax: £11,074.49 Plus cost of financial advice: £2,740.35 Equals total redress: £65,495.82

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Mrs C reluctantly accepted this offer in June 2024 and a payment of £66,257.06 was made to Mrs C. The increase of £761.24 was to bring the figures up to date from the calculation date in April 2024 to the settlement date in July 2024. She also took her benefits from the Section 32 plan which had to be taken as annuities (one for the guaranteed minimum pension (‘GMP’) accrued before 1988 and one for the GMP accrued after 1988). The total income from these annuities starting at Mrs C’s 60th birthday was £1,907 per year. The annuity from the pre 1988 GMP benefits does not increase and has no spouse’s pension. The post 1988 GMP increases by 3% per year and does provide a 50% spouse’s pension. As Prudential has left the annuity market, the annuities were set up through L&G. Mrs C remained dissatisfied and raised a complaint that Prudential haven’t matched her DB benefits like they promised and that they frustrated and delayed the process at every opportunity. She doesn’t think she has been treated fairly. Some of the key concerns were: • The redress should match the DB benefits exactly (i.e. annuity of around £4,000 per year, increasing the same as her DB benefits would have and with 50% spouse’s pension). • Prudential originally agreed to backdate her GMP annuity payments to age 60 (she took the annuities at age 61), but then refused to backdate • Mrs C doesn’t pay income tax, so doesn’t accept the tax deduction • She paid £300 for a valuation from the DB scheme. Prudential had previously told her they would reimburse reasonable costs for an independent actuarial valuation, but didn’t pay her these costs. • They also had agreed to review after the redress had been paid whether any distress and inconvenience payment would be due. • Prudential had deliberately withdrawn from the annuity market to avoid paying the correct redress • Prudential had deliberately delayed matters and refused to answer questions Prudential rejected the complaint. They said they had carried out the calculations in line with the regulator’s guidance about DB transfer redress. Their guarantee was always that the value of the DB benefits would be matched which is how the calculations were conducted. One of our investigators considered Mrs C’s complaint. She didn’t think Prudential had acted unreasonably when calculating the losses as they did. And she did think the notional tax deduction was reasonable. However, she did ask for clarification from Prudential whether the loss calculation did include backdated annuity payments or not. She also thought the £300 Mrs C paid for the valuation from the DB scheme were reasonable costs and should be refunded. She didn’t think Prudential had deliberately delayed things and that they had answered Mrs C questions where possible and within a reasonable timeframe. However, she recognised some information was still outstanding and recommended an award for inconvenience of £200. In response to the investigator’s view Prudential confirmed that their calculations did take into account the payments Mrs C would have had from the DB scheme from age 60, but it hadn’t factored in the backdated payments of Mrs C’s actual annuity from the Section 32 bond to age 60. They have since recalculated the redress including the missing backdated payments and paid a lump sum to Mrs C of £3,432.88 which included 8% interest from the date of the last calculation in April 2024 until settlement. Mrs C responded to say she still felt substantially out of pocket. She also thought Prudential’s handling of the issue had caused her distress and frustration which warranted a higher sum than £200.

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The investigator increased the award for distress and inconvenience to £500 and still thought Prudential should reimburse Mrs C £300 for the DB valuation. She agreed with the additional redress for the backdated payments (which has now happened). The rest of her view remained unchanged. As Mrs C still remained unhappy the complaint was passed to me for an ombudsman’s decision. Provisional decision I previously issued a provisional decision allowing both parties to further comment. I repeat my findings below. Mrs C and her husband feel strongly about this complaint which is understandable given that this is Mrs C’s only pension and of course is important to her. The couple have made detailed submissions which I have carefully considered. I’m not going to set out everything that happened in detail. This is deliberate and shouldn’t be regarded as a discourtesy. We are an informal service and the investigator already set out what happened in more detail. I will focus on what I consider important to resolve this complaint fairly. I would also note that Mrs C previously accepted a redress offer in full and final settlement. So I did consider whether it was reasonable to look at the redress calculation and how it was paid at all. However, I did take into account that the calculations are complex and I feel Mrs C probably got to the point where she felt she had to accept an offer of redress as the valuations kept reducing. She also has been clear throughout that she still thought the redress offer was unfair and raised the complaint promptly. The matter of additional costs and distress an inconvenience are separate matters to the redress offer in any event as Prudential said they would look at those after the loss amount had been agreed. So I’ve decided in the specific circumstances of this complaint that it’s reasonable to address Mrs C’s complaint to draw a close to the matter. Guarantee and redress method I understand that Mrs C feels Prudential has moved away from the guarantee they gave because they didn’t set up an annuity which exactly matched her DB benefits. However, I have to disagree. I have seen the original guarantee letters and included Q&A document from 1999 as well as the letters in 2017 and they all make it clear that Mrs C would be compensated for the value of the DB benefits. The investigator already included this in her view but I repeat again below some of the relevant passages in the documents: In Prudential’s letter, 4 November 1999, it stated it believed Mrs C may have lost out by taking a personal pension instead of remaining in the DB scheme. It said: “…we offer to guarantee to make good any loss you may suffer by ensuring that your Prudential personal pension is large enough when you retire to pay you the benefits of corresponding value to those you have transferred.” The form of acceptance stated: “Prudential must: …guarantee that the value of your personal pension will correspond to the value of the benefits you would have received if you had stayed in the scheme instead of taking out this personal pension.” The accompanying booklet stated (with my emphasis on question 5) :

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“Q1 Prudential will ensure that the value of your personal pension is sufficient to provide benefits of corresponding value to those you would have received had you been a member of your employer's scheme. It will cover the period when you paid into your personal pension instead of being a member. Q2 When you let us know your intended retirement date we will calculate the benefits corresponding to those you would have received had you been a member of your employer’s scheme for the period when you contributed to the personal pension instead of being a member. The Prudential will, as soon as you have accepted our offer, find out all it can about your scheme and the benefit it pays to people who retire from it at the present time including any increases in payments it has recently given to current pensioners. Our calculation will be based on these benefits scales. We will then ensure that the value of your benefits from the personal pension correspond to the value you would have received if you had been a member of your employer’s scheme. Q5 […] We will then work out the cash value of those benefits using methods specified by the SIB (Securities & Investment Board). Our guarantee is to provide you with benefits of that value under the personal pension.” In various correspondences from Prudential, it stated, “the capital value of the personal pension would be equivalent to the benefits forsaken in the occupational scheme.” The principle of calculating the capital value of DB benefits and then comparing it with the actual capital value of the personal pension has been the regulator’s redress method since the Pension Review in 1994. Mrs C was concerned that Prudential told her the regulator had changed the methodology in 2023, however the principles of how to compensate for an inappropriate DB transfer has never materially changed. The regulator simply updated their guidance and rules around this subject with clear rules on when loss calculations had to be updated. The redress methodology Prudential used is fair and reasonable and in line with their guarantee given to Mrs C in 1999 and 2017. I note that in 2017 Prudential promised that Mrs C would get no less than the loss amount in November 1998 (£12,571) rolled up with returns in the Section 32 plan. It’s possible that Mrs C wasn’t provided with such a comparison although I believe she was provided with the Section 32 bonus rates over the years. However, in any event, given that the Section 32 value was only around £22,000 in 2024, it’s highly unlikely that if the loss amount had been added to the pension it would have grown enough to provide the same or higher compensation as the redress method that Prudential used whilst also funding the GMP annuities. So I’m confident Mrs C was provided with the more beneficial method here. Even with annuities, DB benefits more often than not can’t be replicated exactly. Mrs C would have received a tax-free cash lump sum of around £20,437 from the DB scheme plus annual guaranteed income of £3,065 per year, some of it increasing and all of it with a spouse’s pension. She now has the same tax-free cash amount, partly increasing annuity income of around £1,900 per year and a lump sum of around £50,000 which compensates for the missing £1,100 per year (increasing every year) in DB income as well as compensation for the fact that her L&G annuities don’t exactly replicate the DB benefits and should have started at age 60. Mrs C also recently asked whether the redress payment could be made into a SIPP. This option was explored with Mrs C before she accepted the cash payment. A payment into a

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pension can only be made if Mrs C had relevant contribution allowances. As she isn’t working these allowances are minimal, so payment of the full redress into the pension wouldn’t have been possible. The redress includes a sum so that Mrs C can seek financial advice. A regulated financial adviser can advise her of how to best use her lump sum to enhance her retirement income. Mrs C’s loss calculation in April 2024 From what I have seen I consider that the calculation of the DB value in Mrs C’s redress calculations is likely correct. The value is calculated by working out how much it would cost at a certain date (here on 1 April 2024) to buy an annuity with the same increases and spouse’s pension than the DB income. There are detailed technical guidance, rules and formulas by the regulator how to work this out and Prudential has used well known calculation software to run the calculations and has used information available from the DB scheme about revaluation factors. I am not able to check every detail of the calculation, but I have looked at some key data to see if there are any obvious issues. I can see that the starting income at age 60 from the DB scheme that was used by Prudential for the calculations was £3,964 per year. I’m aware that an estimate in 2017 said Mrs C’s benefits would be £4,237 a year. However, this was an estimate and the valuation from the DB scheme that Mrs C acquired herself in 2023 shows a monthly annuity income at age 60 of £326.73 which would be £3,920.76. Prudential’s figures are in fact slightly higher, so I think the values used here are fair and broadly in line with what the scheme itself consider to be the right value. It used revaluation factors from the DB scheme. Also Mrs C’s date of birth and marital status have been recorded correctly which makes sure the spouse’s pension is included in the valuation. I can also see that the discretionary uplift of 1.3% which was decided by the DB scheme in 2023 has been factored in. However, there have been issues with the valuation of Mrs C’s actual benefits in her Section 32 plan. When the investigator asked for clarification whether backdated annuity payments from her L&G annuity had been factored into the loss calculation Prudential confirmed this had not happened. They carried out a calculation as mentioned above and paid the difference with interest to Mrs C (£3,432.88). Having looked at those calculations I’m believe this has been calculated correctly. Mrs C has challenged that the monthly annuity payment used in the calculations was £158.94 rather than the £170.90 she did receive and which has now increased to £172.20. I’m satisfied the figures used by Prudential here are correct. They were looking at the value of annuity payments between Mrs C’s 60th birthday and the date of the loss calculation on 1 April 2024 (when these backdated values should have been factored into the value of the Section 32 bond). Between these dates the annuity payment would have been £158.94. However, there is another issue. Mrs C’s pre 1988 GMP annuity from L&G doesn’t include a spouse’s pension. Legislation before 1988 only included a spouse’s pension for these benefits if the spouse was female. So the annuity for this part has been set up in line with this legalisation. Whilst I understand this is frustrating and outdated in today’s world, this is correct. The DB scheme didn’t make this distinction (all benefits had a spouse’s pension for widows and widowers) which was their discretionary choice. However, the GMP in Mrs C’s Section 32 bond wouldn’t include these additional choices made by the DB scheme. Annuities from Section 32 bonds are restricted to these legislative features (just like the post 1988 GMP annuity had to include a spouse’s pension for example). However, I queried with Prudential whether this had been factored in when calculating the value of the Section 32 bond on 1 April 2024 as an annuity without a spouse’s pension is of course worth less than an annuity which does include this. Prudential confirmed to me that the value hadn’t been reduced accordingly in the April 2024 loss calculations and should

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have been. I asked them to calculate the additional loss which they have now done as follows and they said they will be paying Mrs C the additional sum of £1,542.86. They explained their calculations as follows: The ‘past’ value at 1 April 2024 is still £1,793.54 and includes interest of £45.20 to that date. The future cost for providing the GMP under the bond 32 after 1 April 2024 has changed from £36,909.47 to £35,581.93. So, the total value of the bond 32 benefits in the calculation should have been £1,793.54 + £35,581.93 = £37,375.47. Previously determined value was £38,703.01, so a difference of £1,327.54. So the previously determined shortfall of £2,992.18 should have been £4,319.72 at 1 April 2024. £2,992.18 was increased to date of payment by 8% pa and at 2 February 2026 (including allowance for processing) was £3,432.88 and has been paid. The additional amount of £1,327.54 increased from 1 April 2024 to 11 April 2026 (allowing for processing time) is: £1,327.54 + (£1,327.54 x 0.08 x 2y 10d) = £1,542.86. I’m satisfied with these calculations. However, I consider the overall outstanding redress to be higher which I have explained further below. Notional tax deduction In their redress offer Prudential deducted a notional tax deduction of 15% from the loss amount totalling £11.074.49. Mrs C said throughout that she was a non-taxpayer and so she didn’t think this should be deducted. She was also concerned that Prudential wouldn’t give her some confirmation about this deduction which she could show to HMRC if they later decided she hadn’t paid this tax. I want to reassure Mrs C that the lump sum compensation payment she has been paid is not subject to any tax from HMRC, so HMRC will not contact her about this redress payment and will not ask her to pay any tax in future on this redress amount or ask her to prove that she has. The deduction made by Prudential is a notional tax deduction, so this isn’t actual income tax which needs to be paid to HMRC. It’s to reflect that pension benefits are subject to income tax, so if this had been paid from a pension (for example as annuity income) income tax would apply. The notional tax deduction is meant to avoid overcompensation when a lump sum is paid. The question is whether Mrs C will likely be a tax-payer in retirement and if so which deduction, if any, is reasonable. Mrs C is currently a non-taxpayer and will likely be one until at least 2030. She hasn’t been working since May 2023 and is not planning to do so in future. This pension is her only income until 2030 at age 67 when she will receive a state pension. Her state pension won’t be a full state pension. Even if she worked until age 67 which she isn’t planning to do, she would still be missing National Insurance contributions for a full state pension. Mrs C provided a state pension summary dated 9 August 2025. It shows that based on Mrs C’s National Insurance record up to 5 April 2024, her entitlement was £185.31 per week, so £9,636.12 per year. Mrs C’s argument is that even when adding on the L&G income of around £2,000, it leaves her under the current income tax threshold of £12,571 per year. The uplift of the state pension has now been announced for payments in the 2026/2027 as 4.8% which means Mrs C’s expected state pension benefits at age 67 will be £10,098.65 per

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year as of April 2026. As the state pension is subject to increases (triple lock which means the highest of inflation, average earnings or 2.5%), her benefits will rise every year between now and 2030. Her income from the L&G pensions is currently around £2,065 per year and the smaller annuity will also increase over time, although the overall impact of this will be a lot less. The level of increases on the state pension are not yet known, but even with the minimum increases of 2.5% per year her state pension will be £11,147 in 2030 and likely to be more. Together with her L&G pensions she will receive income over the current income tax threshold of £12,571. And this is before any benefits from the redress are added. Mrs C says she also has a marriage allowance which increases her income tax threshold by £1,260 per year and of course it’s possible that the threshold itself will be increased in future. However, overall, I think it’s more likely than not that if Mrs C had taken the benefits she is being compensated for directly from a pension, she would be paying 20% income tax on these additional benefits. If not from 2030 then likely shortly after. It’s reasonable to look at Mrs C’s tax position over the whole of her retirement. Taking into account her average life expectancy of 87, her retirement during which she would likely be paying income tax on these additional benefits could be around 20 years. So after careful consideration my view is that a notional tax deduction from the loss amount is reasonable in the circumstances. I appreciate that if Mrs C was receiving DB income, she would be paying income tax every year and here the notional deduction is in a lump sum. However, this is the recognised way to carry out this deduction and it is reasonable. The notional deduction used by Prudential in their redress offer was 15% because 25% of any pension benefits would be paid as tax free cash, so they only applied 20% income tax to 85% of the total loss amount. This would work for most loss calculations. However, I don’t think this quite works in Mrs C’s circumstances. I don’t consider it’s reasonable to apply a notional tax deduction in retirement to any past losses (compensation for payments which Mrs C would have received from the DB scheme at age 60 until the loss calculation in April 2024). During this time Mrs C was a non-taxpayer even with this additional income included, so I think a fair application here would be no notional deduction for past losses. The tax-free cash lump sum would have been a past loss. This means any future losses should have a notional tax deduction of 20%. What the calculation should have been and what Mrs C received In the calculation in April 2024, the past loss was calculated as £25,041.63 and future losses as £48,788.33. The additional compensation paid recently (before interest) of £2,992.18 was made up of £1,748.34 past losses and £1,243.84 future losses. The new additional loss of £1,327.54 (before interest) which Prudential has now offered are all future losses. The calculation in April 2024 should have looked like this in my view: Total Loss: £78,149.68 made up of • Past losses: £25,041.63 + £1,748.34 = £26,789.97 • Future losses: £48,788.33 + £1,243.84 + £1,327.54 = £51,359.71 Applying no notional income tax deduction to the past losses and 20% notional tax deduction to the future losses means the overall deduction would have been £10,271.95.

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The redress also included compensation of £2,740.35 for the cost of any financial advice Mrs C might wanted to take. This was calculated as 2.4% of the capital value of the Mrs C’s Section 32 plan as of her 60th birthday and the gross value of the redress figure. This sum also needs to be recalculated as follows: The correct value of Mrs C’s Section 32 plan at 1 April 2024 was £37,375.47. The gross redress value was £78,149.68. So the adviser fee should be: (£37,375.47 + £78,149.68) x 2.4% = £2,772.60 Total redress offered in April 2024 should have been: (£78,149.68 - £10,271.95) + £2,772.60 = £70,650.33. Mrs C has already received £65,495.82 plus £2,992.18 = £68,488 (both sums have already had interest added to the date these sums were paid.) So I consider Mrs C is still due compensation of: (£70,650.33- £68,488)= £2,162.33 plus 8% simple interest per year from 1 April 2024 until 11 April 2026 (allowing for processing time as Prudential has suggested) which would bring the total sum to £2,513.05. Once this has been paid I believe the difference in value between the DB scheme and the Section 32 bond has been calculated in a fair and reasonable manner. Costs for valuation Prudential previously offered to pay for reasonable costs and I consider Mrs C obtaining an independent benefit valuation from the DB scheme for peace of mind at a cost of £300 was reasonable. So I agree Prudential should refund these costs to Mrs C. Distress and inconvenience I understand that Mrs C found the process of claiming on the guarantee and taking benefits stressful and frustrating. Even though Mr C was doing a lot of the communications on her behalf, I don’t doubt that she would have felt the same frustrations, distress and worry about her pension. I don’t share Mrs C’s view that Prudential has deliberately frustrated the process or has tried to change the guarantee or its terms in order to somehow evade or diminish their responsibilities. As explained the methodology they have used to provide compensation is in line with their guarantee and the regulator’s rules and guidance on DB transfer compensation. Prudential took a commercial decision to leave the annuity market around ten years ago which they are entitled to do. They have made arrangements with L&G to provide the GMP annuities on their behalf. There is nothing untoward about this. From the correspondence I have seen Prudential also tried to answer all of Mr and Mrs C‘s questions with reasonable detail over the years and in a timely manner. The guarantee was provided 27 years ago and making the necessary provisions, explaining the details and also making sure they would provide sufficient funds to L&G to provide the GMP annuities (the Section 32 bond was underfunded), was not a straightforward matter. So the fact Prudential had to sometimes refer to a different specialised team and that not all information might be

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as comprehensive as Mrs C would have liked unfortunately wasn’t entirely avoidable. However, I can see that there were some issues in the communications with Mrs C which caused avoidable confusion and upset in my view, including: • previously using an incorrect assumption that Mrs C wasn’t married • documents saying both the GMP annuities would provide spouse’s pensions when this was incorrect • agreeing to backdating annuity payments to age 60 without explaining that they might not do this if Mrs C didn’t take out an annuity within a certain timeframe • not proactively addressing additional costs and distress and inconvenience payments when Prudential had said this would be looked at after loss compensation had been agreed I think these issues would have been frustrating and upsetting for Mrs C and would have had a significant impact on her at a time when she wanted to retire. I consider the suggested award by the investigator of £500 reasonable in the circumstances. Responses to my provisional decision Prudential accepted the provisional decision. Mrs C didn’t think the outcome of my decision was fair or reasonable and made detailed comments which I have considered in full. However, I remain satisfied that my decision is fair and reasonable in the circumstances of this complaint. 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. I understand that Mrs C still wants Prudential to set up an annuity replicating exactly her DB benefits. I’ve explained in detail why I consider the regulator’s redress methodology used by Prudential (which is following PS22/13 and DISP APP 4) fair and reasonable and that this isn’t a breach of the guarantee provided to Mrs C by Prudential over the years. So I won’t be asking Prudential to do anything differently. Mrs C raised a few queries around the calculations. I can confirm that the redress, once uplifted in line with this decision, includes: • Backdated pension payments to age 60 and interest on these backdated payments • Additional compensation for the fact that the L&G annuity which arises from the pre- 1988 GMP entitlement does not provide a male spouse’s pension whereas Mrs C’s DB scheme would have provided this. • Regular annual inflationary increases (past and future) and any discretionary increases which were applied before the calculation was done. For future annual increases the regulator provides assumptions for inflation rates which were used in the calculation. The specific increases Mrs C has mentioned for April 2025 and April 2026 were regular inflationary increases so have been factored in. The value of the DB benefits is calculated following the regulator’s methodology and is based on providing 25% tax free cash and an increasing income with a 50% spouse’s pension and a five-year guarantee.

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I recognise that Mrs C doesn’t trust the calculations as our service has found two errors. However, I carefully considered the calculations and I did clarify the issues that I identified as problematic. Prudential offered to rectify this immediately. My proposition of changing the notional tax deduction to only apply to future losses is specific to Mrs C’s case and what I consider fair and reasonable in the circumstances. Prudential used the general approach as set out in the FCA’s guidance. I have no reason to believe Prudential acted in bad faith or was trying to disadvantage Mrs C. They simply made a couple of mistakes. I also have seen no other reason to think the calculations carried out are generally flawed. I also consider Mrs C’s statement that she’s sure any assumptions are in Prudential’s favour rather than hers unfounded. Any other assumptions which are necessary (for example annuity rates, mortality rates, future RPI, CPI etc) are specified by the regulator and are updated regularly which is why the compensation offers changed over time Mrs C wants me to ask Prudential more questions about how certain figures were calculated, however I don’t consider any of this necessary to reach my decision here. The calculations of capital values derive from complex calculations using actuarial software and regulatory assumptions so it’s not feasible for Prudential to share all the details or for us to check every detail. There is no indication that any figures were calculated wrongly by the software. I did check the calculations for errors that can happen when the wrong inputs are used and we flagged the issues we did see which Prudential put right immediately. So I don’t have any further concerns here and so I don’t consider it reasonable in the circumstances to ask for a secondary calculation by an independent actuary. Mrs C specifically asked how the figure of £1,327.54 was calculated and what it represents. I already explained this in my provisional decision. However, I will clarify again. Prudential originally calculated the capital cost of providing Mrs C’s GMP benefits as £36,909.47. However, this didn’t factor in that part of Mrs C’s GMP annuity doesn’t provide a spouse’s pension. As the cost of providing a single life annuity in future is lower than a joint life annuity the capital value was calculated to be £35,581.93. The past losses remained the same as the annuity amount doesn’t change and any spouse’s pension would only be a future loss. The difference between the capital values is £1,327.54. So essentially this is the compensation for part of Mrs C’s GMP annuity not having a spouse’s pension. The values of £37,375.47 and £38,703.01 are simply the capital values of £36,909.47 and £35,581.93 with the unchanged past losses of £1,793.54 added to them to compare what the calculated losses were and what the right figure should have been. Mrs C also asked why a date of 1 April 2024 was used and not her retirement date. The 1 April 2024 was the valuation date for the calculation she accepted which is in line with the regulator’s methodology. It calculated any past and future losses from this date. Any past losses are calculated from when they should have been paid (Mrs C’s 60th birthday) and any payments have had interest added from the valuation date of 1 April 2024 until they were paid to Mrs C. The same applies to the later payments made to Mrs C and the payments recommended in this decision. The later payments which corrected the errors compare the original calculation with what it should have been and then pay interest on the additional payments for the time Mrs C didn’t have these funds. I acknowledge that Mrs C is still unhappy about the notional tax deduction. She reiterated that she won’t be a tax-payer until at least 2030 and she considers that my assumed increases to the state pension are hypothetical and that I haven’t considered increasing tax- thresholds in future. I carefully considered all of the above in my provisional decision. There is no dispute that Mrs C hasn’t been a tax-payer since she turned 60 which is why I instructed Prudential not to apply a notional tax deduction to any past losses.

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When making a finding of whether Mrs C will be more likely than not a tax-payer during the majority of her retirement years I have to make certain assumptions which I consider to have been reasonable in this case. I consider it reasonable to apply this assumption to the entirety of her future retirement years rather than use on a year-on-year basis. Overall, I remain satisfied that the notional tax deduction I suggested here is fair and reasonable. The notional tax deduction is in relation to the redress amount paid for future losses which is £51,359.71 and what benefits these could have provided if paid into her pension. I would like to note at this point that augmentation to the pension was discussed with Mrs C and discounted by her before she accepted the cash offer. Mrs C will not have to pay any additional income tax on this redress amount to HMRC in future. However, this doesn’t mean she won’t have to pay any income tax if her state pension, any other income, (for example from any potential work she might take up in future) and her L&G annuity income exceed the income tax threshold. She will have to pay income tax on this as normal as no notional deduction has been made on these payments. Mrs C also considers the award for distress and inconvenience is not high enough given she received no real answers to her questions from Prudential when she raised questions and for making the process of receiving her compensation lengthy and stressful at a key stage of her life. She also says the communication issues I listed in my provisional decision were only the tip of the iceberg and repeated the issues she experienced when setting up the L&G annuities and says I swept the issue of Prudential exiting the annuity market under the table. I considered Mrs C’s further comments but I remain satisfied the award of £500 is fair and reasonable in the circumstances for the reasons I have set out in my provisional decision. Putting things right In my provisional decision I said Prudential should pay Mrs C a sum of £3,313.05 (£2,513.05 for additional loss, £300 cost for valuation and £500 award for distress and inconvenience). The additional loss of £2,513,05 included 8% simple interest from 1 April 2024 until 11 April 2026. The assumed settlement date of 11 April 2026 which allowed a month for processing time has now passed. I consider it reasonable to ask Prudential to extend the interest payment until a month after the date of this final decision (so from 1 April 2024 to 28 May 2026). This brings the new loss amount to £2,535.32. Adding on £300 for the valuation and £500 for distress and inconvenience brings the total compensation amount to £3,335.32.. My final decision I uphold this complaint and require Prudential Assurance Company Limited to pay Mrs C the total sum of sum of £3,335.32. Under the rules of the Financial Ombudsman Service, I’m required to ask Mrs C to accept or reject my decision before 26 May 2026. Nina Walter Ombudsman

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