Account of the case
In 2002, the Customer (b. 1960) signed a contract on a voluntary pension insurance policy with an interest-related return expectation (interests assumption) and the pension period comprising the years 2020–2025. The policy also includes pure life insurance element (death cover). According to the payment plan, the premiums/contributions will be paid during the years 2002–2020. Originally, the monthly premium payment to be made by the Customer was 50 euro. At the 2016 level, the monthly premium payment was 67.35 euro. Based on the insurance price list, an 8.5% load fee is payable for premiums credited as per the interest assumption. Further to the price list, no load fee is debited beyond an annual payment limit which, in the case of this Customer, is 3,540.79 euro.
In 2016 the Customer contacted the Insurance Company. He wanted to increase his premium payable in 2016 so that he would be able to make a 5,000 euro deduction in his taxation. His message to the Insurance Company on 9 May 2016 was as follows: ”Is it possible to make one lump sum payment of 4 663,25 [euros] and not monthly payments?” At the same time, he also asked ”Are there any costs I will incur for the change in my payments?” The Insurance Company replied ”Please be noted that there aren’t any costs for changes made to payment plan.” The Insurance Company also informed the Customer that it was possible for him to make one major lump sum payment in 2016.
On 20 May 2016 the Customer made a 4,275 euro premium payment. According to the periodic statement of the insurance as per 12 April 2017, the Customer’s premium payments in 2016 totalled 5,083.20 euro. As per the statement, the load fee taken from the premium payments was 300.94 euro while the life insurance premium totalled 102.20 euro.
The Customer contacted the Insurance Company again in December 2017. In his letter he said he had been given ambiguous information concerning the charges and fees imposed. In May 2016 the Insurance Company had affirmed that no costs would be imposed. However, in 2017 the Insurance Company told that the costs incurred in connection with the lump sum payment were about 400 euro. The Customer also asked the Insurance Company to provide information on the procedure to terminate a pension Insurance Contract or to transfer the respective savings to another service provider.
The Insurance Company replied that a 8.5% load fee had been taken from the payments made by the Customer. The load fee is not applicable to the extent that the payments made in a calendar year are in excess of 3,540.70 euro. In 2016, this limit was exceeded in May when the Customer made the 4,275 euro payment and thus no load fees were imposed for the rest of the year. The Company points out that in 2017 the load were not correct, or only 5% of the payments. This was corrected in July but the Customer was not imposed the missing part of the load fee. According to the Insurance Company, the surrender of the funds saved under the policy was possible only when the surrender criteria in the policy term were satisfied. It was not possible to transfer the policy savings to another insurance company.
Customer claims and the opinion of the Service Provider
The Customer demands that the Insurance Company returns the load fee of 272.34 taken from his 4,275 euro lump sum payment. He also claims a formal compensation for the inconvenience suffered. The Customer finds that he was given ambiguous information about the costs involved. The reply to his precise question about the costs made in May was negative, i.e., there will be not costs. The Insurance Company should have disclosed the costs, even if it was not a question of additional costs but of a normal charge of the fee. Had the Customer been told about the load fee, he would not have made the extra payment. Neither was he told in 2016 that if the sum were sufficiently increased, the load fee would not be imposed at all. The Insurance Company cannot expect the Customer to be aware of the policy taken over a decade earlier, especially as the Customer had asked about the consequences of the extra payment made. In turn, the Customer was told in 2017 that expenses will be charged for the change in the payment plan.
According to the Customer, the policy terms are unreasonable since the policyholder has no right to draw out the policy savings prior to the period of pension, except in determined cases, and no right at all to transfer the savings to another service provider. Since the change has been made impossible, the Insurance Company is in the position to amend the policy terms arbitrarily. The fact that the Insurance Company does not, due to technical problems, agree to transfer the policy, is against the principle of free movement of capital under EU law. The conduct of the Insurance Company is not in line with the EU regulation on PEPP products.
The Insurance Company contests the Customer’s claims. The Company finds that the expenses and fees charged are based on the Insurance Contract and that the Company is under no obligation to return the load fee made to it or pay any compensation. The response given to the Customer is that the change of the payment plan would not cause any cost to the Customer. He was not given any incorrect information, considering the fact that the normal load fee imposed was based on the Contract that had been in force for 14 years at that point. The change of the payment plan does not involve any expenses but the payments are subject to the normal load fee as per the policy terms. During the conversation in 2017, the Insurance Company representative had told the Customer that the load fee imposed on the 5,000 euro savings sum would be about 400 euro.
According to the Insurance Company, the pension insurance policies made in 2010 or thereafter can be freely transferred to another insurance company. As concerns policies taken before that, the transfer is subject to the consent of the insurance company. The Insurance Company in the case at hand does not accept the transfer due to technical problems. The Company points out that the insurance surrender regulations are based on tax legislation and correspond to terms also applied by other insurance companies. The PEPP legislation referred to by the Customer is not applicable to the pension insurance at hand.
Legislation and Terms and Conditions
Under Section 13 of the Insurance Contracts Act in force prior to 1 October 2010 (Policyholder's entitlement to paid-up policy or surrender value under insurance of the person), if any savings have accrued under an insurance of the person, the policyholder is entitled to interrupt premium payments and receive either a free policy corresponding to the savings accrued (paid-up-policy) or the savings accrued under the insurance (surrender value).
When an insurance of the person expires, the policyholder is entitled to the surrender value even if the insurer were otherwise discharged from liability.
Notwithstanding the foregoing, the terms and conditions of a pension insurance policy may include a provision to the effect that the policyholder is not entitled to the surrender value provided in Subsections 1 and 2 above.
Under Section 13.1 b (Policyholder’s entitlement to transfer surrender value accrued under pension insurance), Subsection 1, when giving notice of termination of a pension insurance policy, the policyholder is entitled to have the surrender value transferred to another pension insurance policy taken out by the policyholder or to a savings account that meets the provisions of the act on earmarked long-term saving (1183/2009).
The terms and conditions of the policy may, however, provide that no such right to transfer exists unless the policy is attached with death cover.
Section 13 b of the Insurance Contracts Act entered into force on 1 January 2010. Any contracts made before that date, will be construed according to the provisions in force at the entry into force of the Act.
Under Section 54d Subsection of the Income Tax Act, the taxpayer has the right to deduct the premiums of their pension insurance and endowments of the long-term savings policy to the maximum of 5,000 euro each year. --
Under Section 54d Subsection 2 Paragraph 1 of the Income Tax Act, the deductibility is subject to the contract containing a clause according to which the insurance cannot be surrendered nor the saved sum withdrawn earlier than the above point of time as per Paragraph 2 on grounds related to the circumstances of the insured or the person entitled to the funds under the long-term savings policy, other than their unemployment lasting for at least a year or permanent or partial disability or the death of the spouse or divorce.
Chapter 4 Section 1 of the Consumer Protection Act reads as follows: If a term in a contract referred to in the Act is unreasonable from the point of view of the consumer or if an unreasonable result would ensue from its application, the term may be adjusted or it may be disregarded. Also, a commitment as to consideration shall be deemed a contract term. In the assessment of unreasonableness, due note shall be taken of the contract as a whole, of the positions of the parties, of the circumstances under which the contract was concluded and, of the changes in circumstances unless otherwise resulting from Section 2, as well as of other relevant points.
Under Clause 2.16 (Surrender) of the Insurance Terms and Conditions, the surrender of a pension insurance held by a private individual is possible, if the spouse of the insured has died, the marriage of the insured is dissolved, or the insured or their spouse has become long-term unemployed and, moreover, the insured has given their consent to the surrender.
The unemployment is deemed to be of long-term nature when the insured or their spouse has, during the past 60 weeks, received unemployment benefits for at least 200 days.
Should the insurance savings not have a death cover, the surrender is possible only in individual cases based on an acceptable health declaration given by the insured.
Appended to the Insurance Terms and Conditions, the Paragraph "Charges", Subparagraph 1 (Load fee) provides that a 8.5% load fee is payable on the premiums invested in the guaranteed return savings. - - The load fees are not imposed on sums exceeding the annual payment limit. The payment limit is 67,275 euro divided by the calendar years in the payment contract, however, by maximum 20 years.
The question is about the expenses charged from the premium payment made by the Customer on 20 May 2016. Moreover, in his letter the Customer referred to his rights related to the surrender of the insurance and the transfer of its surrender value.
Prior to making the extra premium payment in 2016, the Customer asked the Insurance company “Are there any costs I will incur for the change in my payments?” The insurance company replied ”Please be noted that there aren’t any costs for changes made to payment plan.” The insurance company also informed the Customer that it was possible for him to make one major lump sum payment in 2016.
According to the policy price list, an 8.5% load fee will be taken from the premium payments invested in the guaranteed return savings policy. However, the load fees are not imposed on sums exceeding the annual payment limit. In the Customer’s case, the payment limit was 3,540.79 euro. Therefore, this is a proportional expense, but with a cap. The charge of 272.34 euro (load fee) taken by the Insurance Company from the premium payment made by the Customer on 20 May 2016 was in line with the Insurance Contract.
In this case, it is undisputed that the Insurance Contract contains a provision on the 8.5% load fee taken from the premium payment. It is likewise undisputed that the Insurance Company has not imposed, as concerns the premium payment of 20 May 2016, any other charges except the load fee.
The Customer had asked the Insurance Company whether the change in payments would entail any costs. According to the reply by the Insurance Company, the changes in the payment plan do not entail any costs. FINE finds that in the case at hand, the reply by the Insurance Company corresponded to the contents of the Insurance Contract as well as the process followed in the case.
The same proportional expense (load fee) had been charged from the premium payment made by the Customer on 20 May 2015 and, indeed, will be the case regarding any premium payments that are inferior to the annual payment limit. Considering the contents of the Customer’s question and the Insurance Company’s reply, the reply cannot give any justified cause to the understanding that no load fee, as per the Insurance Contract, would be taken from the premium payment that is higher than the payment plan.
In the case at hand, the Customer had paid in 2016 exceptional premium payments to reach the aggregate sum of 5,000 euro of premium payments in a year. The sum corresponds to the amount that can be annually deducted in taxation as premium payments of a private pension insurance. No facts have been found in the case to suggest that the Insurance Company should have expressly pointed out and made the Customer aware of the load fee in the insurance price list, or the payment limit applied to the fee. The case does not contain grounds for the return of the load fee in line with the contract nor the payment of any compensation.
In his letters, the Customer also finds that the policy terms are unreasonable since the policyholder has no right to draw out the policy savings prior to the period of pension, except in determined cases, and no right at all to transfer the savings to another service provider. According to the Customer, denying the right of transfer is against the principle of free movement of capitals. The account on the case does not show that the Insurance Company would have changed the Terms and Conditions of the Customer’s pension insurance.
FINE finds that a voluntary pension insurance is a mechanism of restricted long-term saving. The provision of the tax legislation impact the contents of voluntary pension insurance policies. Under the Insurance Contracts Act, the Terms and Conditions of voluntary pension insurance policies can provide that the policyholder is not entitled to receive the surrender value. Under the Income Tax Act, the condition for the right to use the premium payments of a voluntary pension insurance as a deduction in taxation is that surrender is possible under specified circumstances only. The restrictive surrender criteria of the policy terms and conditions is, in fact, the condition for the right to make the tax deduction. Considering the above, the terms and conditions of insurance policies limiting the surrender right cannot be deemed unreasonable. In the case at hand, neither have any facts been presented that would allow to deem that their application would lead to unreasonableness in this case.
Under Section 13.1 b Subsection 1, when giving notice of termination of a pension insurance policy, the policyholder is entitled to have the surrender value transferred to another pension insurance policy taken out by the policyholder or to a savings account that meets the provisions of the Act on earmarked long-term saving. Any insurance contract made before the Act entered into force in 2010 will be subject to the provisions in force earlier than that. Their contents do not include the right to transfer the savings under the insurance.
In the Customer’s case, the Contract on the voluntary pension insurance was made in 2002, prior to the entry into force of Section 13 b of the Insurance Contracts Act, related to the transfer right. The Customer’s Insurance Contract does not include the right of transfer. FINE does not find that the Terms and Conditions of the Policy, in line with the contents of the applicable law, would be unreasonable in this sense, either. Moreover, no facts have surfaced in this case that would suggest that the contents of the Contract would, in this respect, lead to unreasonableness in individual cases or, on the basis of this, it would be indicated to assess the case differently on the basis of EU law.
FINE does not recommend a change in the case.
Finnish Financial Ombudsman Bureau
Head of Division Korkeamäki