Pensions Ombudsman highlights that final bonus rates are ‘inherently variable’

The decision (PDF 6 pages / 501 KB) determined that although delays caused by the scheme administrator amounted to maladministration, they did not lead to financial losses or injustice.

The dispute involved Mr H, who complained that delays by Aviva in processing his retirement claim resulted in a significant reduction in his final bonus, causing an alleged financial loss of £1,588.40. He also argued that Aviva had failed to provide timely pension illustrations and did not communicate effectively with either him or his representative.

Aviva acknowledged some administrative delays, including issues related to sending information about retirement options via email and post and responding to requests. As a result of these delays, on 16 August 2021, it backdated Mr H’s annuity to 19 June 2021 – the date it believed it would reasonably have received his claim without delays – plus interest. Aviva also awarded Mr H an additional £100 in compensation for distress and inconvenience caused by the delays.

However, on the same day, Aviva wrote to Mr H to advise him that his final bonus had changed between 30 December to 19 June 2021. It noted that although it increased from £9,644.78 to £10,721.68 between 30 December 2020 and 29 March 2021, on 19 June 2021 the amount had fallen by £1,588.40 to £9,133.28.

Consequently, Mr H wrote to Aviva in September to highlight the 15% drop in his final bonus amount between March and June 2021, alleging that the firm’s delays had caused him to suffer a financial loss of £1,588.40.

Aviva argued that the final bonus, by its very nature, was not guaranteed, was not linked to the FTSE or any specific index and was liable to fluctuation due to investment performance and market conditions.

The PO confirmed that final bonuses are “inherently variable”, that illustrative figures are never a guarantee of a final amount and that the reduction that Mr H experienced did not indicate maladministration. It added that the final bonus could fluctuate over the lifetime of the plan as a result of both investment returns and market volatility.

The PO found that the backdating already processed by Aviva had ensured Mr H received the correct benefit that he was entitled to, that he did not suffer a quantifiable loss and therefore did not suffer financial injustice. The claim was dismissed and the PO said no further action was required by Aviva.

The decision acts as an important reminder for private pension providers of the merits of timely communication with members. It also highlights that market volatility is ultimately a significant factor in determining final bonus claims.