Phoenix Life and the art of overcharging customers

Potentially tens of thousands of people holding a Scottish Provident insurance policy could be owed substantial refunds, now that life insurance company Phoenix has finally been forced to admit it has been overcharging its clients. Perhaps ironically, the scandal was only brought to light by the efforts of one retired independent financial adviser who took the time to sit down and analyse the charges on his own policies.

After spotting the ‘anomaly’, he contacted The Independent with the aim of warning other customers that their policy value may have been substantially reduced too, requiring a rise in premiums to compensate. The former financial adviser claims Phoenix has been overcharging by as much as a fifth for years.

‘An Indisputable Issue’

After calling the company about the overcharge, the adviser says Phoenix reduced the charge by the anomalous amount and ultimately refunded the total overcharges across all his affected policies. He stated that Phoenix had been overcharging via the application of a rounded bid/offer spread of around 6% on the monthly policy customer premiums invested in the Phoenix range of life funds. The problem, however, is that the actual contractual bid/offer amount is around 5%, meaning Phoenix are overcharging by a rather large 20%.

The adviser’s research indicates that Phoenix dropped the charges from around 6 to 5% on roughly 27 funds in September 2014.

“The bid/offer spread issue is not exclusively a problem with my policies, but rather an indisputable issue across their entire ex-Scottish Provident unit-linked life portfolio – and perhaps pensions too. We are talking about 1 per cent of the ex-Scottish Provident premium income over the last 10 to 14 years or more,” he adds. “Whichever way you look at it, a significant sum is involved, and I can’t believe that their actuarial management people did not know what was going on.”

‘Distress and Inconvenience’

Phoenix’s response?

“The complaint has been dealt with thoroughly and we have made some payments to him to acknowledge any distress and inconvenience that any servicing-related problems have caused. We do understand he remains unhappy with some of our responses and have reminded him of his right to refer the matter to the Financial Services Ombudsman.”

In regards to the bid/offer overcharging the firm stated:

“He raised a specific issue relating to how the bid/offer spread had been calculated for his policy. We accepted his point and refunded some charges to his policy. As part of our normal process, we will of course review to see if this applies to any other policyholder and rectify the situation if it does. We are very grateful to him for bringing it to our attention.”

This response has understandably angered the retired financial adviser, who brought this to light in the first place with the aim of helping other affected by the overcharge.

“It’s true they say they have adjusted my policies in respect of the bid/offer spread problems I raised with them in April 2014,” he said. “But they admit that they have not yet done anything to compensate other policyholders, although they have had 10 months to take action. The ‘distress and inconvenience’ payments that they mention relate to other errors by Phoenix, which I discovered in 2010 and 2011, and it is misleading to suggest they are connected with this issue.”

Can the economy ever truly recover when so many financial institutions seem hell bent on taking everything they can from customers… regardless of the legal consequences?