Phoenix has avoided paying higher sums to 22,000 with-profits customers after it won a case in the High Court against the FSA.
The “co-operative litigation” between the provider and the FSA focused on how a guaranteed annuity offered as part of a with-profits bond should be calculated.
Phoenix’s ‘Freedom Bond’ promised three minimum benefits – a guaranteed ‘nominal capital sum’, a guarantee that Phoenix would convert the policy into a minimum level of annuity and a guarantee the annuity rates for the policyholder and the surviving spouse would be no less than the guaranteed minimum pension, or GMP, at state pension age.
A GMP is the level of pension an occupational scheme which contracted-out of the state earnings related pension scheme, or Serps, was required to provide to its members.
Under the terms of the Freedom policy, if the nominal capital sum was less than the GMP then Phoenix would be required to make up the difference.
The case was brought to clarify whether the NCS should include bonus payments. The FSA argued that it should not, while Phoenix said it should. The court ruled in favour of Phoenix.
The FSA acted as a defendant in the case because there was no representative policyholder and it was felt the issue needed to be resolved “urgently”.
Mr Justice Andrew Smith said: “I uphold Phoenix’s interpretation of the Freedom Bond…to my mind there can be no real doubt about the proper interpretation of the Freedom Bond on the point in issue. It seems to me clear from the wording of the bond itself, given the nature of the instrument.”
An FSA spokesman says: “The FSA entered into co-operative litigation with Phoenix Life Assurance in relation to an insurance policy sold by Pearl Assurance.
“We had been in discussions with Phoenix in relation to how this product operates and considered that there was sufficient uncertainty regarding the wording of the insurance policy contract to seek an authoritative decision from the court as to how the policy operates.
“The court has now made its decision.”
A Phoenix spokeswoman declined to comment.
Informed Choice managing director Martin Bamford says: “This just highlights how complex old pension policy contracts can be.”