What are Mis-sold Annuities?
Annuities are a financial product that allow you to convert your pension into a regular monthly income that is designed to last you for the rest of your life.
When you are quoted for an annuity, you’ll be given a rate as a %. You’ll need to multiply this figure by your pension pot to work out how much income you’ll get every year.
- For example, if you have £50,000 in your pension pot, and are offered an annuity at a rate of 5% per annum, you’ll get an income of £2500 every year until you die.
So, what is changing with Annuities and the Marketplace?
The Conservative Government announced in the 2014 Budget, that from April 2015, people will be allowed to access their pensions as they wish from the point of retirement. You no longer are required to purchase an annuity. The tax rules on annuities are to become more flexible and this will make them a more attractive option.
Also, from April 2015 onwards, your partner or beneficiaries will receive the payments from a joint life, guaranteed or value protected annuity tax-free if you die before the age of 75. Over this age, there will be a marginal tax rate on the payments.
What are the different types of annuity available?
There are a variety of annuities for you to choose from that are suited to your (plus your partner’s needs)
- Single life annuity – all the income is paid to you (every month)
- Joint life annuity – some or all of your income is paid to your partner after your death
- Enhanced annuities – you are paid more income if you have a medical condition
- Escalating annuities – your income rises every year (inflation proof)
- Flexible annuities – part of your money remains invested. This gives you the option for your income to grow (also decline) these are complex products. You do get some guaranteed income
- Fixed-term annuities – these pay out for a fixed period only, after which you get a lump some
- Investment annuities – your money is always invested – it gives a potential for a higher income
Cashing in your annuity
People who have already bought an annuity will now be able to trade them in for a lump sum without a hefty tax charge from April 2016. Chancellor George Osborne announced in the 2015 Budget that there will be a consultation to enable the removal of restrictions on buying or selling an annuity.
Who can buy an annuity?
- If you have a defined contribution workplace pension
- Personal Pension
If you are on a defined benefit, or final salary, these types of pension pay you an income directly, so there’s no need to buy an annuity.
Some workplace pension schemes may allow the pension trustees to automatically buy an annuity for you. The pension trustees are the people designated to look after your pension savings. Ascertain what your options are from your workplace pension scheme manager.
If you’ve been mis-sold annuities, let us help with some free advice.