Scottish Equitable Plc · DRN-5744615

The complaint Mr A complains that Scottish Equitable Plc trading as AEGON set his retirement date as age 70 without asking him and in turn invested him in a lifestyling strategy that wasn’t suitable for him. What happened The pension was a group personal pension policy set up through Mr A’s former employer. He’d started working for a new employer in September 2019, with the first pension contributions startinAg November 2019. When his employer set up his policy, they set the retirement date at the default age of 65. Mr A was already 68 at this point, so Aegon contacted the employer to check what retirement date should be set. They responded saying “Since he started the job at the age of 68 years old. Revised retirement will be 70 years old”. So, the policy was set up on this basis. Mr A was invested in the default investment strategy for this policy, GP Default 2021. And Aegon confirmed this fund selection in May 2020 when they sent him the policy schedule. The policy terms and conditions confirm that Aegon have the right to change the investments within lifestyle funds in line with the strategy. Mr A complained after his adviser said Aegon shouldn’t have set his retirement age without contacting him. He’d suffered losses to his pension due to the downturn in gilts and bonds, which were a large part of the lifestyling funds he was invested within. Aegon issued a final response, it said as the employer set up the pension, it was right to go back to it with the query rather than directly to Mr A. It said Mr A was invested in The GP Default fund, which is a Lifestyle fund and a common default fund choice for workplace pension schemes, such as the scheme he was a member of. It also gave some information about the lifestyling it said: “In general, our Lifestyle selection of funds are designed for customers who are specifically intending to purchase an annuity upon retirement. It should be noted that Aegon do not choose which funds you invest in. This would have been chosen by your employer and the scheme’s financial adviser. Lifestyling follows a two-stage investment strategy, aiming to provide growth in the early years through a higher investment in equities (the growth stage), before gradually transitioning its holdings towards long-term gilts and cash (the lifestyle stage). These have traditionally been regarded as more cautious investments and are suitable for preserving the purchasing power of your fund as your plan approaches your selected retirement date and annuity purchase, through their inverse relationship with annuity rates. Annuity providers use bonds to underpin the income annuities produce as they offer a fixed rate of return. Therefore, we typically see that when long gilts go down, annuity rates will

-- 1 of 7 --

generally go up and vice versa. This helps mitigate any market fluctuations and in normal market conditions means that the size of annuity you can buy stays roughly the same whether bonds go up or down.” Mr A remained unhappy and so raised a complaint with our service. An investigator looked into it and upheld the complaint. He said Aegon hadn’t done anything wrong in returning to his employer regarding the retirement date. However, he didn’t think Aegon had given Mr A enough information about the lifestyling or the funds he was invested within. He said Aegon had an obligation to provide information about the lifestyling and the funds Mr A was invested within so he could make an informed decision but it did not provide this. The investigator felt that had Mr A known the lifestyling was targeting an annuity, he would have chosen to invest in different funds as he didn’t plan to and hasn’t bought an annuity with these funds. So he upheld the complaint and recommended £300 for the distress and inconvenience caused to Mr A. Aegon didn’t agree. It said: “My objection is that because the GP Default fund was the default investment strategy selected by Mr A’s employer for their pension scheme, it was the responsibility of the employer or their duly appointed representative (if applicable) to explain the aim of the investment strategy to their employees’. 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. And having done so, I agree with the findings reached by the investigator and for broadly the same reasons. Mr A as part of his complaint said the lifestyling strategy wasn’t suitable for him, as he didn’t intend to take an annuity. Aegon’s position is it didn’t provide him with any financial advice and it was his employer’s responsibility to tell him about the policy. But I think Aegon still had a responsibility to provide their customers with enough information to make informed decisions. Mr A’s employers plan appears to have been running for some time, well before he joined the scheme. Looking at the GP default fund it was launched in 2008, as Aegon has told us it is popular with workplace pension schemes and is annuity focussed. All lifestyling funds from 2008 would have been annuity focussed as it was largely the only option customers had prior to pension freedoms. Since pension freedoms were introduced in 2015, customers have had much more flexibility about how they take their pension benefits. And as customers might now have different objectives, the annuitising strategies may no longer be suitable. The FCA says pension providers have a responsibility to make sure their customers are aware of this. However, Aegon says the responsibility lies with Mr A’s employer. It hasn’t provided anything to show its agreement with the employer around this or that it has given sufficient information to the employer to provide to its employees. It is fair to say Aegon will be the expert on its own funds. None of the information it has provided us from the time, shows that the GP default fund is annuity focussed. Mr A has confirmed the only information he received about the plan was from Aegon, I’ve looked at the policy schedule it provided and the subsequent statements he received and there is little information about what he is invested in, just that it is the GP Default Fund. I

-- 2 of 7 --

don’t think Mr A was given any information that would have indicated his funds/lifestyling was targeting an annuity – and so he wouldn’t have been aware that it wasn’t likely suitable for his intentions. The Financial Conduct Authority recognised this shift in consumer needs within the context of lifestyling funds. In CP15/30 in October 2015, the FCA said that existing regulation (The client’s best interests rule − COBS 2.1.1R, The fair, clear and not misleading rule − COBS 4.2.1R and the Responsibilities of Providers and Distributors for the Fair Treatment of Customers (RPPD)) meant businesses had expectations on the information they should be giving to customers post pension freedoms. They said "The new freedoms mean that firms can no longer assume that most customers will opt to annuitise at their selected retirement age. Moreover, the concept of a single retirement date will have increasingly less relevance for many customers. Firms, therefore, need to ensure that their lifestyle profiles remain appropriate for their customers’ decumulation needs and provide their customers with sufficient information for them to make an informed decision about the suitability of their current and future investment strategies." This was reiterated in PS16/12 in April 2016, confirming "Firms should remind customers of how their lifestyle investment strategy relates to the retirement options available to them and that, if their retirement needs change, they may need to review their investment strategy." So I think Aegon had a responsibility to make sure it provided Mr A with sufficient information to make an informed decision about the suitability of the GP Default Fund for his needs. And I think Aegon failed to provide Mr A with sufficient information, whilst it wasn’t responsible for the selection of the lifestyling, it was responsible for providing the information. Looking at what it did give Mr A, the policy schedule provided very little information about his investments: There are references to the policy booklet but having looked through this, again there doesn’t appear to be any information relating to the purpose of the lifestyling. Mr A’s statements included a similar level of detail:

-- 3 of 7 --

As the investigator pointed out the information around lifestyling provided in the final response letter was the sort of information Mr A should have been provided at outset. I’ve not seen any information in the schedule or statements which makes it clear what the GP Default investment strategy is designed for. So I don’t think Mr A was put in an informed position and I think Aegon failed to give him sufficient information so that he could make an informed decision about his plan. I need to consider what would have happened if Aegon had provided Mr A with more information, such as that the GP default lifestyling was targeting an annuity. And having done so I think Mr A would have invested differently, I say this because Mr A has confirmed he never intended to buy an annuity. And after transferring away from Aegon he looked for a product that would allow him to access his funds flexibly. He’s also said he already had a final salary pension from his employer who he spent the majority of his career at and when he decided to come back to work, he did so in part because he wanted to build up some extra cash for retirement purposes that he could access when needed. He said he arranged with his employer for bonuses to be exchanged for additional pension contributions for this reason. So I am satisfied that Mr A wouldn’t have wanted to be invested in something targeting annuities and had he been given enough information to understand the makeup of the lifestyling he was to be invested within, he would have chosen a different fund. Mr A has said he doesn’t know exactly where he’d have invested the funds while they were still with Aegon if he’d been given more information, but he says he’d likely have discussed it with a financial adviser. Mr A said the loss in value that he suffered around £10,000 caused him shock and distress. Had he not been invested in the gilt/bonds that made up the GP Default Fund, I don’t think he would likely have suffered this loss (as these funds suffered huge volatility that others didn’t). So I agree with the investigator that Aegon should also pay Mr A £300 for the distress and inconvenience caused. I think this is fair and reasonable and in line with our guidelines for this sort of occurrence. So I am upholding this complaint and I’ve set out below what Aegon need to do to put things right.

-- 4 of 7 --

Putting things right Fair compensation My aim is that Mr A should be put as closely as possible into the position he would probably now be in if he had been given sufficient information. I take the view that Mr A would have invested differently. It’s not possible to say precisely what he would have done differently. But I’m satisfied that what I’ve set out below is fair and reasonable given Mr A's circumstances and objectives when he invested. What must Aegon do? To compensate Mr A fairly, Aegon must: • Compare the performance of Mr A's investment with that of the benchmark shown below. If the actual value is greater than the fair value, no compensation is payable. If the fair value is greater than the actual value there is a loss and compensation is payable. • Aegon should also add any interest set out below to the compensation payable. • Aegon should pay into Mr A's pension plan to increase its value by the total amount of the compensation and any interest. The amount paid should allow for the effect of charges and any available tax relief. Compensation should not be paid into the pension plan if it would conflict with any existing protection or allowance. • If Aegon is unable to pay the total amount into Mr A's pension plan, it should pay that amount direct to him. But had it been possible to pay into the plan, it would have provided a taxable income. Therefore the total amount should be reduced to notionally allow for any income tax that would otherwise have been paid. This is an adjustment to ensure the compensation is a fair amount – it isn’t a payment of tax to HMRC, so Mr A won’t be able to reclaim any of the reduction after compensation is paid. • The notional allowance should be calculated using Mr A's expected marginal rate of tax at his selected retirement age. • Mr A is likely to be a basic rate taxpayer at the selected retirement age, so the reduction would equal 20%. However, if Mr A would have been able to take a tax free lump sum, the reduction should be applied to 75% of the compensation, resulting in an overall reduction of 15%. • Pay to Mr A £300 compensation for the distress and inconvenience caused by the loss to his pension. Income tax may be payable on any interest paid. If Aegon deducts income tax from the interest it should tell Mr A how much has been taken off. Aegon should give Mr A a tax deduction certificate in respect of interest if Mr A asks for one, so he can reclaim the tax on interest from HM Revenue & Customs if appropriate. Portfolio name Status Benchmark From (“start date”) To (“end date”) Growth to bring the calculation up to date

-- 5 of 7 --

Aegon GPP No longer in force For half the investment: FTSE UK Private Investors Income Total Return Index; for the other half: average rate from fixed rate bonds Date of investment Date ceased to be held If there is a loss at the end date. Aegon needs to bring it up to date by contacting Mr A’s current provider, Transact, and finding out how much the loss would be worth now had it been invested in the same way. If Transact is unable or unwilling to do so, the benchmark in this table should be used in place of this. Actual value This means the actual amount paid from the investment at the end date. Fair value This is what the investment would have been worth at the end date had it produced a return using the benchmark. To arrive at the fair value when using the fixed rate bonds as the benchmark, Aegon should use the monthly average rate for one-year fixed-rate bonds as published by the Bank of England. The rate for each month is that shown as at the end of the previous month. Those rates should be applied to the investment on an annually compounded basis. Any additional sum paid into the investment should be added to the fair value calculation from the point in time when it was actually paid in. Any withdrawals should be deducted from the fair value calculation at the point it was actually paid so it ceases to accrue any return in the calculation from that point on. If there is a large number of regular payments, to keep calculations simpler, I’ll accept if Aegon totals all those payments and deducts that figure at the end to determine the fair value instead of deducting periodically. Aegon must pay the compensation within 28 calendar days of the date on which we tell it Mr A accepts this decision. Mr A should if required help Aegon carry out this calculation by providing it with the required information (or authority to request it) about his current pension plan.

-- 6 of 7 --

If Aegon fails to pay the compensation by this date and Mr A has complied with its requests, it should pay 8% simple interest per year on the loss, for the period following the deadline to the date of settlement. Why is this remedy suitable? I’ve decided on this method of compensation because: • Mr A wanted Capital growth with a small risk to his capital. • The average rate for the fixed rate bonds would be a fair measure for someone who wanted to achieve a reasonable return without risk to his capital. • The FTSE UK Private Investors Income Total Return index (prior to 1 March 2017, the FTSE WMA Stock Market Income total return index) is made up of a range of indices with different asset classes, mainly UK equities and government bonds. It’s a fair measure for someone who was prepared to take some risk to get a higher return. • I consider that Mr A's risk profile was in between, in the sense that he was prepared to take a small level of risk to attain his investment objectives. So, the 50/50 combination would reasonably put Mr A into that position. It does not mean that Mr A would have invested 50% of his money in a fixed rate bond and 50% in some kind of index tracker investment. Rather, I consider this a reasonable compromise that broadly reflects the sort of return Mr A could have obtained from investments suited to his objective and risk attitude. My final decision I uphold the complaint. My decision is that Scottish Equitable Plc trading as AEGON should pay the amount calculated as set out above. Scottish Equitable Plc trading as AEGON should provide details of its calculation to Mr A in a clear, simple format. Under the rules of the Financial Ombudsman Service, I am required to ask Mr A either to accept or reject my decision before 14 April 2026. Simon Hollingshead Ombudsman

-- 7 of 7 --