Closed book life company Phoenix Life is under fire from an adviser who claims the provider levied a fee on his clients that was not detailed in policy documents.
Facing criticism is what Phoenix is calling a 'notional cash factor' (NCF), used to calculate transfer values for two of the advisers's clients.
The first client transferred a pension to another provider, and the other transferred out of a conventional with-profits retirement annuity contract that offered guaranteed basic pension at retirement.
Phoenix Life stated in a letter to the adviser that NCFs are “used to convert the basic guaranteed basic pension into cash value”.
The provider said NCFs are regularly monitored in line with changing markets and can go up or down, and are reviewed at least quarterly with new NCFs implemented on 31 March, 30 June, 30 September, and 31 December.
It added that NCFs place a cash value on the guaranteed minimum pension based on long-term interest rates available in financial markets and other factors such as life expectancy of the policy holders.
Richard Kafton, managing director and chartered financial planner at Cedar House Financial Services, said that a 65 year old client lost 4.2 per cent off the transfer value of his pension between the time the client requested a transfer value quote in November and when the transfer amount came through in January due to a change in NCF.
“During this period the stock market witnessed unprecedented growth, and by anybody’s standards there should not have been any loss whatsoever, let alone a loss of 4.2 per cent,” Mr Kafton said.
Another of Mr Kafton’s clients was charged a NCF when he transferred out of a conventional with-profits retirement annuity product.
Mr Kafton said that there was no mention of a NCF is any previous correspondence with Phoenix Life or in the policy documents.
“Phoenix continue to abuse their clients by imposing a NCF transfer penalty, which is introduced at the point of transfer, and which does not appear to have any basis or mention in original policy information or policy transfer information, when such details are requested," he said.
“The NCF allows Phoenix to arbitrarily continue to add a transfer penalty without any prior indication or information of what this penalty is going to be. It is completely opaque and is imposed after clients have made a decision to leave Phoenix, but without any prior indication by Phoenix about the imposition of the NCF.”
He called Phoenix Life’s justification of the charge “incomprehensible claptrap”.
Phoenix Life denied that an NCF is an addition or a charge, but a “mechanism for converting a deferred annuity into a cash lump sum”.
The provider stated that deferred annuities are the only product where NCFs are applied.
These contracts were launched before the personal pension transfer regime started in the late 1980s, meaning that there was no need to calculate a transfer value when the policies were first taken out and no mention in the policy details of how this transfer value would be calculated.
