Aviva Life & Pensions UK Limited · DRN-5848348

The complaint The trustees of the B trust, represented by Mrs B, complain about a reviewable whole of life (RWOL) policy they hold with Aviva Life & Pensions UK Limited. They’re unhappy with the outcome of a policy review in 2024 and think that Aviva have failed to manage the policy correctly. What happened The B trust holds a RWOL policy with Aviva. The outcome of the 2024 policy review was that in order to maintain the sum assured of £250,000, the monthly premiums needed to increase from £272.20 to £408.15. If the premiums weren’t increased, then the sum assured would reduce to £169,173. Mrs B complained to Aviva about the outcome of the review. She was unhappy with the size of the increase in premium required to maintain the sum assured. She noted that she hadn’t been asked to increase her premiums in 2021 and 2022 and had only seen a small increase in 2023. She thought the inconsistency in the level of increase required meant that Aviva hadn’t managed the policy correctly over the years and had failed to ensure that it stayed viable over the long-term. Aviva looked into the concerns she’d raised but didn’t uphold the main part of her complaint. They explained that the outcome of the review was correct and clarified how the policy worked, including the review process. However, they apologised for the length of time it had taken to answer her complaint and offered her £150 in compensation. Mrs B didn’t accept their findings and asked for our help. However, Aviva didn’t consent to our investigation into the merits of the complaint. They pointed to an earlier complaint Mrs B had raised about the outcome of the 2018 review. They thought that the 2024 complaint was a duplicate of the previous complaint and therefore it fell outside of our jurisdiction. The investigator considered Aviva’s points but concluded that he could investigate the merits of the complaint. Aviva didn’t agree and asked for an Ombudsman to decide if the merits of the complaint could be considered. I issued a jurisdiction decision setting out why I thought the merits of the complaint could be considered as there were differences between the two complaints. I said that the 2018 complaint, while brought about by the outcome of the 2018 review, was related to guarantees that Mrs B wanted about future reviews. The 2024 complaint related to Mrs B’s concerns that Aviva haven’t correctly managed the policy, and it was this mismanagement that caused the 2024 review to fail and require the significant increase in premium to maintain the sum assured. The investigator then went on to consider the merits of the complaint and thought it should be upheld. In his opinion, Aviva hadn’t provided Mrs B with sufficient fair, clear and not misleading information about the policy from the point where the costs of the policy overtook the premiums being paid in 2004. If they had provided the required level of information, then it was likely that Mrs B would have taken steps to make the policy more sustainable and

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increased her premiums gradually over the years. In order to put things right he thought that Aviva should reconstruct the policy based on the Mrs B gradually increasing her premiums over time. Aviva didn’t accept the investigator’s findings and made the following points, in summary. • The investigator had misrepresented the basis of the product. • The jurisdiction decision had set out that the complaint to be considered was about whether Aviva’s mismanagement of the policy was what caused the 2024 review to fail. In their view the policy had been managed in line with its terms and conditions and the reason it failed the 2024 review was because it was taken out on a maximum cover basis on the advice of Mrs B’s IFA. It was therefore always expected that premiums would need to be increased at reviews if the level of life cover was to be maintained. • Their reviews had been carried out in line with the policy terms which dictated that the review outcomes considered the period until the next review date. • It was possible for customers to ask to make changes to their policy under its terms if they are aware that this is something they can do. However, this was separate to the review process. Mrs B was aware that she could ask to make changes to the policy’s benefits and premiums outside of the review process as she’d done it on two separate occasions, in 2010 and after the 2024 review. • The investigator suggested that 2004 was a point in time when Aviva should have been able to predict the outcome of the 2024 review. The annual statements issued between 2000 and 2009 included details of the total premiums and the total charges taken over the statement period. For example, in the period from the 2004 policy anniversary and the 2005 policy anniversary, premiums of £300 were paid and charges of £352.24 were taken. It was therefore clearly disclosed that the charges had become more than the premiums. • The investigator said that from 2004 Aviva would have known that eventually the policy would reach a point where it no longer had enough investment units left to sell to continue to support the benefits and that is what happened at the 2024 review when most of the units and the cost of life cover required higher premiums to support the sum assured. However, the point when the policy no longer had enough investment units to support the benefits first happened at the 2007 review not the 2024 review. • At the 2007 review the benefits needed to be reduced from £250,000 to £173,468 or alternatively the premium needed to be increased. The review letter was returned as address incomplete and the benefits were reduced. Mrs B subsequently contacted Aviva in 2010 and asked to increase the benefits back up to £250,000. She was provided with a quote and confirmed by letter that paying a premium of £39.48 for a sum assured of £250,000 until the next review would be acceptable to her. This demonstrated that Mrs B was aware that the premium she chose to pay only guaranteed the benefits until the next review date, not for any longer period. • Mrs B chose to take the policy out on a maximum cover basis with a very low premium for the chosen level of cover. On this basis, there was never any prospect that cover might last throughout life without significant premium increases at the

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policy reviews. The illustration provided in 1992 when the policy was taken out, highlighted that if investment growth were to average 7% p.a., the level of cover might be supported for 17 years. The fact that the review at year 15 failed and required a change was in line this this and was predictable. • It would then normally be expected that the policy would need a further change at each subsequent review, although changes to mortality rates, actual investment performance and assumptions about future returns could have an impact. The policy subsequently failed the 2012 review and all the reviews from 2017 - 2025. Until the 2024 review, Mrs B always increased premiums to maintain cover at £250,000 so it was clearly important to maintain cover at this level for as long as it remained affordable. This was in line with how a policy taken out on a maximum cover basis was designed to work. • Events up to and including the 2018 review had been previously assessed by the Financial Ombudsman Service and therefore should not be reassessed as part of the complaint that the 2024 review outcome was caused by Aviva’s mismanagement of the policy. • Aviva had managed the policy in line with the policy terms, as they were required to do. It was not for them to proactively offer bespoke alternative premium options to customers who are served by their own independent financial advisers where Aviva did not have knowledge of their circumstances or needs. The investigator wasn’t persuaded to change his opinion, so the complaint has been passed to me to decide. 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 think this complaint should be upheld and I will go on to explain why. But I’d firstly like to address the issues Aviva have raised relating to issues considered in the 2018 complaint and what is being considered under this complaint. As I set out in my jurisdiction decision, the 2018 complaint was brought about by the outcome of the 2018 review. Mrs B wanted a guarantee that premiums wouldn’t continue to increase by similar amounts at future reviews. The 2024 complaint was brought about by the outcome of the 2024 review and related to Mrs B’s concerns that Aviva hadn’t correctly managed the policy which caused the 2024 review to fail and require the significant increase in premium to maintain the sum assured. As I also explained in the jurisdiction decision, both complaints stemmed from policy reviews which could be complained about separately in their own right under the DISP rules, given that they were separate, distinct events. The 2018 complaint didn’t look into Aviva’s historic management of the policy; it only considered whether they were within their rights to review the policy and make changes. Therefore, I see no reason why this complaint shouldn’t consider Aviva’s historic management of the policy as this aspect of the complaint had never previously been investigated or addressed. I’ve then considered Aviva’s submissions relating to how they’ve completed the reviews. I take their point that they’ve administered the policy according to its terms and conditions and I must stress that this isn’t in dispute. I agree that the terms of the policy set out that it is reviewable and each review is focused on whether the policy is able to maintain its benefits

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until the next review. I also accept that the policy was taken out on a maximum cover basis which meant that while premiums would be relatively low at the outset, they would likely face significant increases over time. However, I must also consider if Aviva met their regulatory obligations and I’ve set out below what I consider to be the relevant standards I’ve taken into account: • The FCA’s Principles for Businesses, in particular Principle 6 and Principle 7; • The FCA’s Conduct of Business Sourcebook (COBS), in particular COBS 2.1.1R(1) and COBS 4.2.1R(1) • The FCA’s Final Guidance on the “Fair treatment of long-standing customers in the life insurance sector” (FG16/8). What can be drawn from the guidance is that Aviva ought to have provided Mrs B with clear, fair and not misleading information about the policy. In order to do so, I think their communications should have included: • Details of the existing cover and the costs of the policy, including life cover costs and any administration charges. • An explanation that the premiums being paid had been overtaken by the costs of the policy and the investment fund was now being used to offset these costs. • An estimation of how long the policy was likely to last on its existing terms based on Aviva’s current assumptions and estimates of the changes the policy might require at that point. • A clear explanation of the options available to mitigate any significant changes that the policy might require in the future, together with the costs and benefits of each option. Taking this into account, I don’t agree that Aviva weren’t required to set out different options that might be available to mitigate potential poor outcomes in the future. I think that the standards that I’ve set out above, particularly sub-outcomes 2.2 and 2.3 of FG 16/8 placed a requirement on firms to ensure that consumers were fully informed of the different options they may have and the policy benefits that might be impacted by policy events such as a review. I appreciate that Aviva did provide some information to Mrs B, but I’m not persuaded that they provided enough clear, fair and not misleading information to enable her to make an informed decision about the policy. For example, the policy’s charges increased from c.£350 in 2004 to c.£3,900 in 2024 but Mrs B was never given any indication that they would increase to anywhere near this level. She also wasn’t told what it may cost to maintain the policy’s sum assured in the future or what level of sum assured her existing premiums would support in the future. Because of this, I don’t think Aviva were acting in Mrs B’s best interests and I’m not satisfied that they met their regulatory requirements. I would also stress that I’m not disputing the level of charges that were applied to the policy or the basis of the reviews that Aviva carried out. What I am saying is that due to the standards I’ve set out above, they needed to provide Mrs B with a greater level of information than they did. Because I think that Aviva failed to meet their regulatory obligations, I’ve considered what, if anything, Mrs B would have done differently.

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In doing so, I’ve considered a variety of factors including the purpose of the policy and how Ms B has responded to previous reviews. She’s said that the policy was originally taken out to mitigate a potential IHT liability, and it is evident that she has tried to maintain the sum policy’s sum assured at the majority of the failed reviews in the past. The only exceptions were at the 2007 and 2024 reviews. The 2007 review led to a reduction in the sum assured, but only because Mrs B didn’t receive the review letter and she subsequently contacted Aviva and made arrangements to increase the sum assured back to its original level. She complained after the failed 2024 review as she couldn’t afford the increased premiums that would be required to maintain the sum assured. Taking all this into account, I think that if she’d been put in an informed position in 2004 when the costs of the policy exceeded the premiums being paid, she would have taken steps to make the policy more sustainable. I find it more likely than not that she would have gradually increased her premiums over time in order to meet this objective. It is difficult to say exactly what she would have done, but I don’t find the investigator’s proposal that she would have paid premiums of £50 per month from 2005 to 2010, £100 per month from 2011 to 2015, £200 per month from 2016 to 2020 and £325 per month from 2021 onwards unreasonable. Therefore, I think that Aviva should reconstruct the policy on this basis. This won’t guarantee that the policy wouldn’t require any changes in the future as it was never designed to operate in that way, but it would go some way towards mitigating the significant changes needed at the 2024 review. This course of action will have some implications though. There will be a deficit in premiums paid between August 2005 and the point where the reconstruction is completed. I don’t expect Mrs B to make up this deficit, however she can choose to do so if she can afford to. But if Mrs B doesn’t choose to make up the deficit, she will be in a better position than she would have been had no errors occurred. Therefore, I think it is fair for Aviva to deduct the sum of the deficit from any claim made on the policy or surrender value in the event the policy is surrendered, if they think it is appropriate to do so. Putting things right In order to put things right, I think Aviva should: • Reconstruct the policy based on a sum assured of £250,000 and premiums of £50 per month from 2005 to 2010, £100 per month from 2011 to 2015, £200 per month from 2016 to 2020 and £325 per month from 2021 onwards. They should offer Mrs B the option to repay the deficit in premiums caused by the reconstruction. • If Mrs B doesn’t make up the deficit in premiums, then Aviva can deduct the sum of the deficit from any claim made on the policy or surrender value in the event the policy is surrendered, if they think it is appropriate to do so. My final decision For the reasons I’ve given above, I uphold this complaint. Aviva Life & Pensions UK Limited should put things right as I’ve set out above. Under the rules of the Financial Ombudsman Service, I’m required to ask Mrs B and Ms C as trustees of the B Trust to accept or reject my decision before 16 April 2026. Marc Purnell Ombudsman

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