Aviva pays out after annuity error led to customer working five years longer

File image of a pension savings potAviva must compensate a client who had to work an extra five years because of a failed annuity payment.

In a Financial Ombudsman Service ruling, Mr R complains about the compensation he was paid in 2016 relating to a section 32 pension plan.

In the case, Mr R planned to receive his annuity payments at 60 and use the personal tax allowance to minimise income tax until his state pension started at 65.

In 2011 Mr R received a pre-retirement pack before he was due to take benefits but a year later Aviva advised Mr R could not take the benefits from the plan.

This was because the guaranteed minimum payment could not be supported from the fund at the time and so Mr R decided to resume working.

Over the next five years Mr R tried to earn a level of income to minimise income tax but in 2016 Aviva said it had made an error in not paying him the annuity in 2011.

Aviva paid compensation of around £21,000 yet deducted basic rate tax from the compensation lump sum as the amount was above Mr R’s personal tax allowance.

Mr R complained the tax treatment of his compensation was wrong because he would have ensured his income would have been below the tax threshold, as was the case with his earned income.

Aviva said it could not refund the tax according to HM Revenue and Customs rules but did offer £500 for the inconvenience of having to work for an additional five years.

One of the adjudicators investigated the complaint and thought it should be upheld because the evidence showed Mr R managed to work enough hours to remain below the tax threshold.

The adjudicator was also satisfied that had Mr R received his annuity payments he probably would not have paid tax on them.

He added Aviva should have considered the implications of its error, £500 was inappropriate compensation and recommended Aviva pay £1,000 for each year Mr R had to go to work, totalling £5,000.

Aviva did not agree and said the amount recommended was too high and beyond what it had paid other clients who had suffered the same error.

It offered a further £100 for any inconvenience Mr R suffered in dealing with HMRC but argued Mr R benefitted from the income he had received from working and would probably have paid tax anyway.

The adjudicator did not change his view and said Mr R had demonstrated he did not pay income tax when he worked for the five years.

The case was referred to ombudsman Terry Connor who says there is clear evidence Mr R had a plan to retire at age 60 and incorporate the annuity payments from his Aviva plan.

It follows Mr R has been financially disadvantaged by both paying income tax on the compensation and by working for a further five years.

Aviva did improve the offer to Mr R as it increased the distress payment from £600 to £700 and offered £4049 in compensation but Mr R rejected this.

Connor says the £4049 is acceptable but £700 is not enough for the distress caused and so £1250 should be paid.

Therefore to compensate Mr R, Aviva must pay £5299 consisting of £1250 for distress caused and £4049 as per its offer as at 6 March 2018.

An Aviva spokesperson says: “We always try to resolve any issues with our customers when they arise. Where that is not possible customers can contact the FOS and we adhere to the final decision made by the ombudsman.”



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  1. Aviva are one unholy mess!
    (How do they reimburse 5 years of the guy’s life?)

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