Pension Insurance Corporation plc · DRN-6157505

The complaint Mr D complains about the significant fall in his pension’s transfer value. And Pension Insurance Corporation plc’s (PIC) explanation about this. While he has previously queried the fall in transfer value, he now feels PIC has given him conflicting information. What happened Mr D was a member of a defined benefit pension scheme provided by his employer. He left pensionable service with that employer in November 1984. That employer’s scheme was later wound up. In May 2019, Mr D’s former employer wrote to him. It said the scheme’s Trustee had agreed to insure his pension benefits with PIC through the purchase of a bulk annuity policy. It said that PIC was now responsible for the administration of Mr D’s pension benefits. And for paying his full pension benefits as they fell due. It also confirmed that Mr D’s scheme benefits would remain unchanged before and after his individual policy with PIC was set up. PIC issued Mr D with his individual annuity policy and a welcome booklet. This explained that his Normal Retirement Age (NRA) was 65. And that the annual annuity he’d earned as at 2 November 1984 was £631.33. It also provided details about how his pension would increase in deferment and in retirement. And explained that Mr D could transfer his benefits up to 12 months before his NRA. In December 2021, Mr D decided to transfer the value of his Section 32 annuity policy to a provider I’ll refer to as provider L. After some issues with documentation had prevented progress, PIC reissued a transfer value quotation on 27 January 2022. The transfer value at this date was £101,294.55, which wasn’t guaranteed. The final value would be recalculated based on market conditions at the time the transfer was paid. There were then some delays to the transfer. Mr D complained to PIC in April 2022 that he was unhappy with the service it’d provided. PIC responded to the complaint in May 2022. Mr D emailed PIC in May 2022 as he was reconsidering his options. He asked it to send him the current valuation and background information on the defined benefits of his scheme. PIC told Mr D that the transfer value of his benefits as at 19 May 2022 was £85,795. It reconfirmed that transfer values weren’t guaranteed. It said it revised them monthly to incorporate new economic assumptions. PIC said: The main two economic assumptions affecting TVs are expected future interest rates and expected future inflation rates. In general terms, an increase in expected future interest rates decreases TVs and an increase in expected future inflation rates increases TVs. Decreases in these assumptions have the opposite effect. The effect varies between members based on factors such as the years to retirement and the extent to which the benefits are linked to inflation.

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On 17 November 2022, Mr D called PIC to ask for the current transfer value of his pension. PIC told him it was £62,649.92 at that date. He was unhappy with the decrease in value. And raised a complaint. PIC told him that his transfer value had probably fallen due to an increase in interest rates. Mr D emailed PIC to formally query the decrease in value. On 21 November 2022, PIC wrote to Mr D to tell him that his transfer value had been £101,294.55 in January 2022 and was now £62,649.92 in November 2022. It again explained that the factors used to calculate the transfer value weren’t guaranteed and could change each month. It provided a detailed explanation for the decrease in transfer value. PIC said there had been significant turbulence in the financial markets recently, coupled with a rise in gilt yields. It explained that when it calculated the transfer value, it worked out the current value of the payments it expected to pay Mr D and any beneficiaries in the future, based on current asset values. It said his current transfer value was lower than previous quotes to reflect the change in the value of the assets it held. PIC also said that it was likely that the transfer value would fall further if interest rates continued to rise and/or market turbulence continued. PIC confirmed that whatever happened in the markets, it would still pay Mr D the amount of pension he was expecting. PIC wrote to Mr D again on 21 November 2022 to tell him that the transfer value quoted was the amount it would cost another provider to pay his annual pension and any other benefits due, including any Pension Commencement Lump Sum (PCLS). It said the PCLS wasn’t 25% of the transfer value. It provided a detailed explanation of how it calculated the PCLS. Mr D raised further queries. He wanted to know how, if his pension pot had fallen by 40%, he could expect his pension to be the same value as it had been in his former employer’s scheme. He felt that he should’ve been able to take a tax-free lump sum of 25% of his transfer value. And noted that if his transfer value had reduced, so had the tax-free cash lump sum available to him. He asked PIC to tell him what his pension and his 25% tax-free lump sum would be with his current pension pot. Mr D also provided quotes from other providers for a fund value of £102K. He said he could receive a £25,500 tax-free lump sum and an annual pension of £12,000. PIC issued its final response to the complaint on 22 November 2022. It repeated the points it’d made in its 21 November 2022 letters to Mr D. It didn’t think it’d done anything wrong. Mr D felt that PIC had said that his pension funds had reduced due to interest rates going up. He said his pension pot had fallen by 30% in March/April 2022, despite the main interest increases taking place in November 2022. Mr D asked PIC what it’d invested in to cause the 40% decrease in his pension pot. On 23 February 2023, PIC issued a further final response as Mr D remained dissatisfied with the explanations it’d provided. It maintained that its previous explanations about the decrease in transfer value were correct. And noted that there was an approximately 3.5% annual increase in expected future interest rates between the two transfer values it’d quoted on 21 November 2022. PIC provided a simple calculation to help explain why Mr D’s transfer value had fallen in the way that it had. It also reconfirmed that Mr D’s expected pension at his NRA hadn’t changed. It said his current transfer value was £65,935.19. It said this wasn’t guaranteed. Mr D was still unhappy. So he asked PIC further questions about what he felt was the fall to the value of his pension pot. He also felt that PIC had used various assumptions to price an

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annuity despite not being asked. He wanted to challenge the assumptions it’d used. PIC said that it couldn’t provide details of specific assumptions due to their commercial sensitivity. But it explained that it calculated its transfer values on a best estimate basis for both economic and demographic assumptions. PIC said transfer values had fallen significantly during 2022 due to an increase in expected future interest rates. And that this was the main reason for the fall in the transfer value. It said this was in line with transfer values across the industry. PIC replied to Mr D’s question from November 2022. It said that in February 2022 his transfer value was £97,456.86 and in March 2022 it was £91,926.86. As such, it hadn’t fallen in value by £30K in March 2022. On 18 August 2023, PIC wrote to Mr D with an estimate of his benefits. It provided his pension options. And stated that the maximum cash lump sum he could take was £9,328.20 Mr D was still unhappy with the transfer value reduction. He was also unhappy that PIC didn’t offer a 25% tax-free cash lump sum. On 8 September 2023, PIC issued a further final response. It again explained how it calculated Mr D’s cash lump sum and his annual pension amount. It said he had belonged to a defined benefit pension scheme that had subsequently been insured with PIC. It said his former employer’s scheme had been designed to give him a regular specified income in retirement from a set date. And that his annuity policy with it mirrored the benefits promised by the former employer’s scheme and provided the same regular income in retirement. PIC told Mr D that he didn’t have a pot of money invested in funds. So investment performance didn’t impact the amount of pension he built up before he left his former employer’s scheme. PIC explained that if Mr D chose to give up part of the defined benefit pension he’d built up so he could take a cash lump sum, the resulting lump sum was called a PCLS. It said that at retirement, he could choose to take up to 25% of his pension benefits as a PCLS. PIC explained that although with a defined contribution pension pot it was possible to take 25% of the fund value, the calculation was more complex for a defined benefit arrangement like the one Mr D had, which didn’t have a fund value. It said it needed a cash commutation factor for the calculation. It explained what these were and how they were calculated, noting that it revised them monthly to incorporate new economic assumptions. On 19 December 2023, PIC wrote to Mr D to chase his response to its retirement options letter from 18 August 2023. On 8 August 2025, Mr D emailed PIC as he said his transfer value had continued to fall. PIC issued a final response to the complaint on 31 August 2025. It didn’t think it’d done anything wrong. It said: • Mr D’s pension hadn’t reduced. It was only the transfer value which had fallen. It again explained how that could happen while the pension amount didn’t decrease. It noted that it’d mirrored the benefits provided by Mr D’s former employer’s scheme. It said it would provide the same regular income in retirement as that planned within the original scheme.

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• Mr D held a defined benefit pension, so didn’t have a pot of money invested. Therefore, investment performance didn’t impact the amount of pension. • As there was no pot of money, PIC had to calculate transfer values for the pension. It said a transfer value was a measure of how much it cost to provide the pension. And that it had to calculate the transfer value in a prescribed way based on several factors, including life expectancy and age. It said a key factor impacting transfer values was interest rates. • Since 2022, there had been significant changes to transfer value, driven by the increases in interest rates by the Bank of England. Mr D replied to PIC on 3 September 2025. He felt it’d failed to answer some of his points. PIC issued a further final response to on 8 September 2025. It repeated some of its previous explanations. And expanded on its explanation about Cash Commutation Factors (CCFs). It said CCFs told PIC how much cash it could give Mr D for each £1 of annual pension he gave up. And that the higher the CCF, the higher the PCLS. Mr D continued to ask PIC further questions about his pension. In an email dated 9 September 2025, he said he was now very confused. He felt that PIC had previously told him that the main reason for the reduction to his pension fund was the increase in interest rates. He now felt it had told him that other factors, such as his age and anticipated life expectancy affected his fund value. He asked PIC for a current quote for an annuity. He wanted it to consider his age, his health issues, his family history, and the fact that he was single and therefore didn’t need a widow’s pension. He said PIC had failed to use his specific factors in its calculation when it’d provided previous quotes. Mr D also again asked PIC to explain what had happened when his pension fund value had reduced from £102K to £60K. He also wanted it to explain how it was standing by his former employer’s commitment to retain the same terms and conditions as with his previous provider. PIC apologised to Mr D for any confusion caused by its previous responses. It said it would prepare an immediate retirement quotation. On 14 September 2025, PIC sent Mr D the requested retirement quotation. And on 16 September 2025 it provided a further response to some of the questions he felt it hadn’t answered. PIC repeated its point that the transfer value wasn’t the value of Mr D’s pension fund. It was simply the value he would take to another provider if he transferred his benefits away. It again explained that the transfer value couldn’t be used as a basis for the PCLS. PIC again explained that it calculated Mr D’s annual pension based on benefits from his date of leaving his former employer. And then revaluing those benefits up to the retirement date. It then applied late retirement factors as Mr D was past his NRA. PIC also repeated its explanation about how it calculated a PCLS. PIC said it’d already provided a response to Mr D’s question about the fall in his transfer value. On 16 September 2025, Mr D asked PIC to confirm that the quotation it’d sent him had been based on the personal details he’d requested it use in his 9 September 2025 email. He felt those details should increase the value of his annuity.

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On 18 September 2025, PIC told Mr D that as his pension was a defined benefit pension, he didn’t have the option to choose the “shape” of his annuity while his pension remained with it. It said that if he wanted a single life annuity and/or an enhanced annuity, he’d need to transfer his benefits to a different pension provider. It said he should take independent financial advice before making any decision to transfer. Mr D continued to feel that PIC was ignoring his questions. PIC issued a further final response on 29 September 2025. It repeated some of its earlier explanations. It further explained that the annuity he held with it had been calculated using the deferred benefits as at his date of leaving his former employer’s scheme. It reconfirmed that his personal circumstances didn’t affect the calculation of his benefits. It said the annuity it was committed to pay Mr D wouldn’t be reduced to allow for a dependent’s pension or increased if one wasn’t needed. Unhappy with this response, Mr D referred his complaint to this service in October 2025. He said that while PIC had originally told him the fall in his transfer value was due to interest rates, it was giving him conflicting information. Our investigator noted that Mr D had referred an earlier, linked complaint to this service. She said this service had considered several of Mr D’s complaint points in an outcome dated 1 November 2023. And that it wouldn’t be appropriate for her to investigate them again. However, she felt that Mr D’s current complaint differed from his 2023 complaint as he now felt PIC had given him conflicting information about the transfer value. Our investigator said that PIC had explained to Mr D on various occasions that the transfer value calculation was based on several factors, such as interest rates. And that it’d also explained that the transfer value changes had in recent years been driven by the Bank of England’s increases to interest rates. And that this had led to transfer values falling in recent years. While our investigator acknowledged Mr D’s concern about his falling transfer value, she said it represented the amount of money PIC would need to provide his promised benefits. Alternatively, it was the amount it would cost any new provider to provide the pension that Mr D would be giving up by moving away from PIC. Our investigator explained that Mr D’s policy with PIC meant that it would pay the pension he would’ve received from his former employer’s scheme to him. She said Mr D didn’t have a pot of money allocated to him. Instead he had the option to transfer his benefits to another provider. Our investigator acknowledged that Mr D was unhappy with the fall in his transfer value. But felt that PIC had to consider various factors and economic conditions outside of its control when calculating the transfer value. She didn’t think that PIC had made an error when it’d explained how it calculated the transfer value. And she didn’t believe it’d provided Mr D with conflicting information when explaining this. So she didn’t uphold the complaint. Mr D didn’t agree with our investigator. He made the following points: • He felt he’d had a growing pension fund before it’d been sold to PIC. He said around 2018, that fund had a value of over £101K. He acknowledged our investigator had said there was no fund value. But wanted to know why PIC had quoted values to him. • He said that when his fund was sold to PIC, it’d told him he didn’t have a value associated because it calculated an annuity. But it wasn’t able to divulge how it

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calculated this. • Mr D said he’d asked PIC for an updated transfer value after he’d decided to halt his transfer request. He said he discovered at this point that his transfer value was around £85K. Mr D said that PIC told him the fall was due to the increase in interest rates. He said interest rates then continued to increase and his transfer value continued to fall. But PIC failed to contact him about his. He said by September 2025 his transfer value had fallen to around £60K. Mr D said he no longer trusted PIC. And felt that if he decided to transfer, he couldn’t be sure about the amount that would be transferred. • Mr D said when he asked PIC why his transfer value was continuing to fall, despite interest rates falling, and with other market factors improving, it’d apologised for the previous confusion. He said its subsequent explanation stated was that it was the fact that his policy was defined benefits that his transfer value was falling. He felt this was inconsistent with his transfer value falling significantly in 2020 when interest rates went up. • Mr D also felt that PIC wasn’t offering him a competitive annuity compared with the open market. He still felt it should take his personal circumstances into account when calculating his annuity. And he felt the cash lump sum it offered was too low. • Mr D said that his former employer had told him in writing that when PIC took over his pension, he’d retain the same benefits as before. He felt this hadn’t happened. As agreement couldn't be reached, the complaint has come to me for a review. 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’m not going to uphold it. I know this will disappoint Mr D. I’ll explain the reasons for my decision. I’ve included the history of this complaint and the one that came before it as I wanted to review each of PIC’s explanations to Mr D about his pension. But this decision focuses on Mr D’s 9 September 2025 complaint about the conflicting explanations he felt PIC had given him. Before I consider the details of the complaint, I’d like to summarise the situation. As PIC has explained, the Section 32 policy Mr D holds with it is a defined benefit policy, with the benefits payable at retirement defined under his individual policy. This means that he doesn’t have his own individual pension pot holding assets. Instead, he has a commitment from PIC to provide the benefits defined under his policy. These mirror the benefits he would’ve received under his former employer’s scheme. And Mr D has no right to change these benefits in any way, regardless of his medical or marital status. This means that if Mr D took his retirement benefits through PIC, he would receive a defined pension at retirement and a tax-free sum, calculated as a PCLS. And these benefits would be equivalent to those he would’ve received under his former employer’s plan. Therefore, I can’t reasonably agree with Mr D that PIC has changed the benefits he would’ve had in his former employer’s scheme. I say this because the evidence shows that he has

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retained the same benefits within his policy with PIC. However, Mr D has the option of transferring his defined benefits with PIC to another provider. As there is no pension pot to transfer, PIC must place a value on the benefits it would otherwise have to pay Mr D under the terms of his Section 32 policy. To do this, PIC calculates a transfer value. As it has explained, this represents the cost of providing the benefits under the policy, using current market conditions and assumptions. PIC also uses population-wide demographics for the transfer value calculation, rather than taking account of Mr D’s individual circumstances. Again, this mirrors what would’ve happened in Mr D’s former employer’s scheme. I appreciate that Mr D would like PIC to explain to him in detail how it calculates his transfer value. But I’m satisfied that it was reasonable for PIC to provide a simplified explanation, rather than sharing full details of the specific assumptions used, given the commercial sensitivity of those assumptions. If Mr D decided to transfer the value of his benefits under his Section 32 policy to another provider as a defined contribution pension, his retirement benefits would no longer be defined by the terms of the Section 32 policy. Instead, they would depend on the investment returns he could achieve on what would now be his individual pension pot. And on his own personal circumstances. If Mr D chose to buy an annuity with some or all of his defined contribution pension pot, he’d be able to ask the annuity provider he chose to provide a quotation based on his medical and marital circumstances. And if he decided to take a tax- free cash lump sum, he’d be entitled to take up to 25% of the value of his pension pot. The evidence shows that PIC has provided Mr D with quotations on his retirement pension and his maximum PCLS. Mr D said that these were considerably lower than those he felt were available to him through the open market. And that the annuity didn’t take his personal circumstances into account. I appreciate that it must seem unfair to Mr D that the benefits guaranteed under his policy with PIC don’t look as favourable as those he could achieve on the open market. But that doesn’t mean that PIC has done anything wrong. PIC committed to guaranteeing the benefits that would’ve been provided under Mr D’s former employer’s scheme. PIC has also explained that the method of calculating the PCLS for a defined benefit scheme such as his is different from the method for calculating the tax-free cash available from a defined contribution scheme. It’s also explained how it calculates a transfer value. I’ve seen no evidence that PIC has made an error with its calculations. In my view, the apparent difference in benefits if Mr D transferred away from PIC is due to his medical and marital situation being significantly different from the basis which PIC must use to calculate the transfer value. It said it used a best estimate basis for both economic and demographic assumptions. Put simply, if PIC were to use Mr D’s individual circumstances to assess his transfer value, it would be lower than the one it must calculate. I’ve gone on to consider the crux of Mr D’s new complaint. This is what he feels is PIC’s changing explanation of the reasons for his transfer value falling. Did PIC’s explanation change and was it incorrect? Mr D’s new complaint is that PIC changed its explanation for the reduction to his transfer value. He said that while it initially told him the decrease had been caused by an increase in interest rates, it’d subsequently explained that it was because his policy was defined benefits. He also felt that the fact that it’d apologised for the previous confusion meant it’d made a mistake.

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The evidence shows that in May 2022, PIC told Mr D that the main economic assumptions affecting transfer values were expected future interest rates and expected future inflation rates. But it also stated that the impact of those economic assumptions varied between members depending on factors such as their years to retirement. Then on 21 November 2022, PIC provided Mr D with a further detailed explanation for the decrease in transfer value. This included a statement that it was likely that the transfer value would fall further if interest rates continued to rise and/or market turbulence continued. However, PIC also noted that whatever happened, it would still pay Mr D the pension he was expecting. On 23 February 2023, PIC again explained that the main reason for the recent significant fall in transfer values was the increase in expected future interest rates. It also said this was in line with transfer values across the industry. Mr D raised a further complaint on 8 August 2025 as he said his transfer value had continued to fall. In PIC’s 31 August 2025 response, it again explained what a transfer value was. And said it was required to calculate the transfer value in a prescribed way based on several factors, including life expectancy and age. But it repeated its previous points that a key factor impacting transfer values was interest rates. Confused by its explanations, Mr D wrote to PIC on 9 September 2025. He felt PIC’s explanation for the fall in transfer values had changed from being due to the increase in interest rates, to being based on other factors, such as his age and life expectancy. PIC then apologised to Mr D for any confusion caused by its previous responses. While I appreciate that PIC’s apology may have convinced Mr D that it’d made a mistake. I don’t think that was the case here. The evidence shows that PIC frequently explained to Mr D why the transfer value had fallen. And I’m not persuaded that its explanations were ever inconsistent. I say this because, as I’ve noted above, from May 2022, PIC explained to Mr D that while the main causes of the fall to his transfer value were economic factors, the transfer value was also dependent on other member-related factors. The evidence shows that PIC has consistently and correctly explained that the main reason for the significant fall in the transfer value was the rise in interest rates. And I’m not persuaded that PIC changed its explanation in 2025. I say this because PIC continued to state that the main reason for the fall was the rise in interest rates. I’m satisfied that PIC has provided clear, fair, and not misleading information to Mr D about why the transfer value decreased. I’m also satisfied that it has calculated the transfer values and the PCLS correctly. As such, I can’t reasonably uphold the complaint. My final decision For the reasons explained above, I don’t uphold the complaint. Under the rules of the Financial Ombudsman Service, I’m required to ask Mr D to accept or reject my decision before 23 April 2026. Jo Occleshaw Ombudsman

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