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Annuity Problems

Millions of people save money into personal pensions. Pensions have in the main done what they said on the tin. Provided a return on the investment made (invariably not as much as we hoped!) and given valuable tax relief on the premiums paid.

Major changes are proposed from April next year regarding how the benefits can be taken. A great deal more flexibility will be allowed. However, the position now and historically is that part could be taken as a tax free lump sum (25% of the total pot) and the remainder purchased an “annuity”.

A typical example
You reach age 65 – your policy is worth £100,000. So, your lump sum is £25,000 and the remainder of £75,000 “buys an annuity”. Let’s say that is £4,500 a year.

What is an annuity?
In its simplest form an annuity is a fixed and guaranteed sum of money paid to the “annuitant” by an insurance company until they die. It is an insurance against long life. Once purchased it cannot be altered or cancelled.

Greatly mis-understood
People do not like annuities as they perceive that the capital is lost. If you die in the first few years that may be a fair assessment. At present the rate of annuity for a healthy non-smoking 65 year old male is around 6%. The bank of England base rate 0.5%. So an annuity will provide a guaranteed income of 12 times the Bank of England base rate. Assuming you need income, which most people do, there’s little obviously wrong with that. Without stockmarket gambling, and a long run of luck, it is impossible to beat the income an annuity will provide.

So how may I have lost out here?
When your policy matured the insurance company would have sent you a pack in order that you could claim your benefits. It would have shown the cash sum payable and how much they would pay as an annuity. But how clear was it made that you could transfer the £75,000 from them to another insurance company thereby increasing the £4,500 per year guaranteed pension into a £5,000 per year pension? This was called the “open market option”.

Open Market Option
Since 1975 it has been a legal requirement that insurance companies release monies to other insurance companies in these circumstances. Otherwise they would literally hold you to ransom. However, and I know this might shock some people, it seems that some insurance companies may have been “a bit naughty” here. A recent report by the Financial Conduct Authority revealed that insurance companies who were “rolling over” their own policies into their own annuities were making significant profits out of it. They had a vested interest in their customers not getting the best deal. To quote directly from the FSA report out of 420,000 maturing policies in 2012, 60% bought their annuity directly from their own insurer, of those a staggering 80% could have got a better deal using the open market option. So that’s over 200,000 people who have lost out in 2012 alone. And this has been going on for years.

Were you in good health?
We spend our lives telling insurance companies what good health we’re in. They’d put our premiums up otherwise! Come “annuity time” things change. Since 2000 increasing numbers of annuity providers were offering catchily named “impaired life annuities”. The simple idea was taking annuity money from those closer to the grim reaper. That way the impaired life chappies bag the pot sooner and split some of that back with you by way of an increased annuity. Simples. Just one example is if you were a smoker your annuity rate would have been around 15% higher using one of these annuities. The potential increases in your annuity that may have been missed here are huge.

What about “the Mrs”?
Annuities can have all kinds of features and options. The more you stack the odds in your favour the less you get and vice versa. Going back to the example of a man aged 65 whose annuity is £6,000 per year this would be based on his life. When he dies the annuity stops. But what if he’s lucky enough to have a 25 year old wife and wants the annuity to continue to be paid to her once he’s pushing daisies? The annuity payer has now lost any realistic hope of any windfall. Even if this husband dies of an unexpected coronary they are likely to be stuck with the annuity payments to the wife for another 65 years! So the annuity wouldn’t be £6,000 a year, it might be half that.

In the real world wives are close in age to husbands, and vice versa, the complete loss of annuity payments on a death can be catastrophic for the finances of those left behind. The maturity packs tended to direct people to a very simple annuity that provided no protection for spouses.

Can I claim?
Let us be the judge of that. It will depend on what your circumstances were at the time, the date of the events, and what you were sent by the insurance company, this will vary from case to case.

How much will any successful claim be worth?
Clearly the claim (loss) will be directly proportionate to the size of your pot. There would be a “past loss” for annuity payments you haven’t been paid, and a “future loss” to cover for the shortfall in your annuity.

Using the £75,000 example with a 15% underpayment of annuity (and a large sprinkling of assumptions) since 2008 the past loss would be around £4,050 and the future loss £13,500. There would be tax to take into account of course.

No win no fee
Whitehall Randall are Britain’s longest established claim management company. Since 2003 Whitehall Randall have reclaimed millions of pounds for their thousands of happy customers. Owner Andrew Hummersone is a Chartered Financial Planner having worked in the financial services industry for over 30 years. Initially as an Independent Financial Advisor for which has a “Hail Mary” certificate available for inspection. He sees himself as a modern day “Robin Hood” helping then public claim back what they have had taken from them by the insurance industry. With a heavy heart, and only to feed his children, he charges 20% plus vat of the compensation paid.

In all seriousness our service is completely no win no fee. There is nothing to pay under any circumstances until you have received a compensation payment.

Find out if you might qualify
Please call 01322 291566 or 0800 3287416 if you’d like us to pay for the call.