Phone them up and find out. Sounds like they are in the process of doing something with the PPI refund. Whether they are refunding you the money or putting it to one side just in case, I have no idea. They appear to be doing something with it.
If you have the ability to record the phone call when you make it, then that might be advisable. If they tell you that they are refunding the PPI premiums, you will then have a recording.
If they are not refunding, but have put the money aside, then using the letter received, just continue the complaint with the FOS.