The Ombudsman added this does not constitute a payment of tax to HM Revenue and Customs, so Mr S will not be able to reclaim any of the reduction after compensation is paid.
Mr S is likely to be a basic rate taxpayer when he takes the benefits, according to the ruling, so the reduction would equal 20 per cent.
However, as he would have been able to take a tax-free lump sum, the reduction should be applied to 75 per cent of the compensation, resulting in an overall reduction of 15 per cent, as proposed by Aviva.
The Ombudsman added that the £200 Aviva has already paid Mr S is “fair compensation” for the inconvenience he has suffered.
Ultimately, the Ombudsman upheld the complaint and directed Aviva to pay the compensation it has already calculated to Mr S which is “fair” in the circumstances.
In response to this, a spokesperson for Aviva stated: “We take customer service very seriously. Although we aim for no complaints, the ones we get represent just 1.76 per 1,000 life policies in the UK.
“If a customer still has concerns after we have dealt with their complaint, we advise them of their right to approach the Fos, and we abide by their ruling.
“In this case, the ombudsman found our offer was fair, and we will compensate in the manner they lay out.”
tom.dunstan@ft.com
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