Scottish Widows Limited · DRN-6249397

The complaint Mr M complains that Scottish Widows Limited used his pension savings to purchase an annuity, when he would’ve preferred to take it as a lump sum. What happened In April 2003 Mr M started a personal pension with Scottish Widows when he was with a previous employer. The policy terms required benefits to be taken by age 75, and as Mr M hadn’t selected an alternative, the retirement date was set as his 75th birthday in September 2025. Scottish Widows sent Mr M statements over the years showing how his plan was performing, and the pension he could expect at retirement. Six months ahead of Mr M’s 75th birthday, Scottish Widows wrote to him to remind him he should make a decision about how he wanted to take benefits from the policy before he turned 75. Mr M says he can’t recall receiving the correspondence from Scottish Widows, or perhaps he received it but didn’t appreciate its significance. But as Mr M didn’t give instructions, once he turned 75 Scottish Widows arranged to use Mr M’s pension savings of around £26,288 to purchase an annuity. From September 2025 he’d receive around £2,338 a year, paid in monthly instalments of around £195, with no dependent’s pension and a five-year guarantee period. The letter said Mr M could amend the annuity option if he contacted Scottish Widows within 30 days. Mr M called Scottish Widows soon after receiving their letter, to ask if instead of the annuity he could take the benefits as a lump sum. Scottish Widows said that wasn’t possible after age 75, but he could change the annuity terms, for example to add a spouse benefit. So Mr M complained saying that over five years the lump sum would be of more benefit to him than the annuity payments, and he should be able to choose how they are paid. Scottish Widows responded to the complaint in October 2025, explaining that once a policyholder reaches age 75, the option to receive pension benefits as a lump sum is no longer available. So while Mr M did contact them within the 30 days it wasn’t possible to unwind the annuity. Unhappy with this, Mr M referred his complaint to this service where it was considered by one of our investigators. She sympathised with Mr M’s position but didn’t think Scottish Widows had treated him unfairly. She was satisfied that the correspondence Scottish Widows had sent Mr M made it clear that unless he gave instructions prior to turning 75, the policy value would be used to purchase an annuity, and it was reasonable for him to have read those letters. Mr M said he’d contacted Scottish Widows within 13 days of the letter notifying him of the annuity purchase, and felt they were being inflexible. He’d always intended to take the policy as a taxable lump sum which would be of more benefit to him. And he didn’t accept Scottish Widows lacked the technical ability to cancel the annuity if it wanted to.

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So the case has come to me. 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 agree with the investigator’s conclusions for broadly the same reasons. Let me explain why. Mr M started his Scottish Widows plan in 2003, when the default way to take benefits from a personal pension was to use the value to purchase an annuity providing a secure income for life. This was obviously long before the “pension freedoms” legislation in 2015 which allowed greater flexibility in how pension benefits could be taken. But with greater life expectancy, the other options risk the funds running out too soon, leaving the individual without an income in later life. Scottish Widows has provided a copy of Mr M’s policy. Section 8 covers “Retirement Benefits” and explains Mr M can’t access the policy prior to age 50 (the minimum age is now 55 shortly to rise to 57). And makes clear that regardless of Mr M’s selected retirement date, benefits “must be taken by age 75”. So I think from the outset Mr M was aware that he could access the policy whenever suited his circumstances, as long as it was prior to 75. And he’d have expected the policy to be used to purchase an annuity, as that was the default option at the time. Mr M’s plan started in April, so the annual statements cover the year from the previous May. Scottish Widows hasn’t sent us copies of every annual statement or item of correspondence it has sent to Mr M over the years. But I have seen the statements from 2021, 2022, 2023 and 2024, and the letters in 2025 sent prior to Mr M’s birthday. They were all sent to his current address, the one he provided to this service, and while mail does occasionally go missing, most is delivered safely. So I think it’s reasonable to say at least some of those items are likely to have reached Mr M. Indeed Mr M doesn’t deny receiving the correspondence, he thinks he may have received it but not realised its significance. But from what I’ve seen I think Scottish Widows gave Mr M plenty of notice about what would happen if he didn’t provide his clear instructions prior to turning 75. As well as explaining how the plan has performed over the past year, the 2021 statement tells Mr M “you are able to take benefits at any time between the age of 55 and 75”. The 2022 statement includes a section headed “Take Action Soon”, which goes on “You will normally have to take your pension benefits before your 75th birthday, otherwise we’ll normally use the whole of your pension value to purchase a guaranteed income for life. You won’t be able to change or cancel the income”. In 2023, two years prior to Mr M’s 75th birthday, Scottish Widows sent Mr M a letter in addition to the annual statement. In the statement sent in May the “Take Action Soon” section replicated the wording from the same section in the 2022 statement, but this time it was highlighted with a red warning triangle. And in August 2023 Scottish Widows sent Mr M a letter headed “Choose what to do with your pension”, and then it listed some actions Mr M needed to take, which included reviewing his options, reading the pension summary and guides, consider the open market option, access the free government guidance or take financial advice, and call Scottish Widows to let them know what he wants to do. Underneath this in a box edged in red, with a red warning triangle there are two bullet points saying “Please get in touch with us before your 75th birthday. If we don’t hear from you, you may lose the ability to choose how you take your pension”. And under “What this means for you”

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it reads “If we don’t hear from you by your 75th birthday we’ll automatically buy an annuity for you” (my bold emphasis). And in 2024 as well as the usual statement sent in May, Scottish Widows wrote to Mr M in August, including the same required actions as set out in the 2023 letter. A paragraph headed in red “Don’t lose control of your pension”, with a red warning triangle and the word “Important” says “If you don’t contact us by 21st September 2025, we’ll automatically buy an annuity for you”. And this warning is repeated again further down the page, under “What this means for you”. It provided the telephone number to call and says “It’s important that you call us as soon as possible, because you’ll lose some retirement options when you reach 75”. The 2025 statement which was sent prior to Mr M’s 75th birthday has a page which says in very large print “You’ve almost reached your selected retirement age of 75”. It reminds Mr M to “Take Action Soon” and repeats the previous warning that he must take action before age 75, otherwise he’ll lose some of his retirement choices. And it makes clear that if Mr M doesn’t make contact before his birthday, Scottish Widows will purchase an annuity, but he’ll lose the opportunity to choose the type of annuity that suits him best, take tax-free cash or shop around to see if another provider has a better deal. I’m satisfied the communications are written in a simple, straightforward and user-friendly way, and make very clear what Mr M needed to do if he didn’t want Scottish Widows to use his pension savings to purchase an annuity. But for whatever reason, Mr M didn’t heed any of those warnings and didn’t contact Scottish Widows prior to his birthday. So Scottish Widows arranged to use the entire balance of around £26,288 to purchase an annuity with no spouse pension and no increments, meaning the payments will continue for the whole of Mr M’s life but the amount won’t increase. But it does include a five-year guarantee period, meaning that should Mr M pass away within five years of the annuity starting, it will continue to be paid for five years, it wouldn’t immediately die with him. Mr M says he has had numerous employments and retirements, and this policy related to employment with a company which lasted only two or three years. He’d already retired, so his 75th birthday wasn’t his actual retirement date, and as it was wrong on all the paperwork that’s why he didn’t engage with Scottish Widows. But the correspondence makes clear that age 75 is the default retirement date used when the individual hasn’t selected an alternative. And if Mr M wanted to make a choice about how his pension benefits were paid to him, it was the date by which he needed to let Scottish Widows know. Mr M could have selected an earlier retirement date, in which case Scottish Widows would’ve chased him for action sooner, (and the policy value is likely to have been lower), but he couldn’t have extended the policy’s retirement date past age 75. So I don’t agree with Mr M that because age 75 wasn’t his actual retirement date, it was reasonable for him not to have contacted Scottish Widows about his options. Mr M says he always intended to take the whole plan value as a taxable lump sum, and the proceeds of around £17,416 after tax, would be “life changing” for him. I think taking a lump sum would’ve been an option open to him prior to age 75, but he didn’t let Scottish Widows know that’s what he wanted prior to the deadline. And in the absence of any instructions from Mr M, I can’t reasonably say Scottish Widows did something wrong by following the policy terms and using the balance to purchase an annuity to provide him with a guaranteed income for life. Mr M says he’s unlikely to live long enough to receive the full benefit, but at least he has the security of an income for life, however long that may be. So while I appreciate Mr M’s disappointment, I’m not going to ask Scottish Widows to do anything differently here.

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My final decision I don’t uphold this complaint. Under the rules of the Financial Ombudsman Service, I’m required to ask Mr M to accept or reject my decision before 27 April 2026. Sarah Milne Ombudsman

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