Have you been mis-sold a pension annuity?
Mis-sold 1. Impaired / enhanced rates
Pension annuity companies estimate how long similar groups of people will live and calculate how much money they can afford to pay people based on their life expectancy. Certain lifestyle factors such as how much you smoke or the amount of alcohol you drink or medical conditions such as blood pressure and cholesterol levels for example can impact your life expectancy. If you have a shorter life expectancy you could be entitled to receive more money from the pension annuity companies. These special pension annuities are called impaired life or enhanced rate pension annuities.
When you bought your annuity were you asked:
Have you in the last 10 years smoked or consumed alcohol?
Have you had any medical conditions where you were prescribed medication or have you been hospitalised for a serious illness?
If the answer to the above or any similar lifestyle questions is “YES” at the time you bought your annuity but you were not asked to disclose this at the point of sale you could be receiving a lower income than you were entitled to. You may have been mis-sold your pension annuity and be eligible for compensation.
Mis-sold 2. Were you offered the Open Market Option (OMO)
Despite every retiree having the right to shop around for the best pension annuity product – known as using the Open Market Option (OMO) – most people don’t and end up buying a pension annuity from the company that their pension savings were with. This may have been the best choice but were you given appropriate communication material to make this very clear that this was your legal right?
Regulator, The |Financial Service Authority (FSA), recently hit out at the insurance companies claiming that 405 of letters sent to retirees explaining their options do not sufficiently highlight the right for the individual to use the open market option OMO. If you were not provided with the correct communication materials you may have been mis sold your pension annuity and be eligible for compensation.
|Pension Pot Value||Offer from existing Pension Provider (first offer) pa.||Income available when using OMO to shop around for best deal||Increase in annual income|
|Mr S 59 years old, terminally ill, non smoker||£97,000||£4,919||£8,363||70%|
|Mr T, 59 years old, terminally ill, smoker||£58,000||£4,095||£5,356||31%|
|Ms M, 64 years old, good health, smoker||£16,725||£1,043||£1,336||28%|
|Mrs K, 75 years old, good health, non smoker, likes a drink||£30,155||£1,923||£2,059||7%|
The examples given are for real life cases, however to protect the individuals the names have been changed. Figures given are gross and after any tax free cash has been taken.
Mis-sold 3, Did you receive appropriate information to help you decide whether to choose a single or joint life pension annuity?
Were you provided with information that clearly explained that on your death your spouse would no longer receive an income for life unless you purchased a joint life pension annuity? If you were not provided with the correct communication materials you may have been mis sold your pension annuity and be eligible for compensation.
Mis-sold 4. Were you offered the opportunity to protect the value of your pension annuity upon your death?
With a value-protected pension annuity, if you die before age 75, your original pension savings less any income you have received is returned to your estate less the appropriate government tax charge. If you were not provided with the correct communication materials explaining whether this option was available you may have been mis sold your pension annuity and be eligible for compensation.
Mis-sold 5. With Profit pension annuities
These work like any with-profits investment. When you take out a with-profits annuity, you choose an anticipated bonus rate (ABR). The level of your income depends on the ABR. Annuities with the highest ABRs pay the highest initial incomes, but the higher the starting income, the less chance there is that it will increase in future. If you were not provided with the correct communication materials to explain your pension income was subject to investment performance risks you may have been mis sold your pension annuity and be eligible for compensation.
Mis-sold 6. Unit Linked pension annuities
Your money is invested in a unit-linked pension fund which works along the same lines as a unit trust. Your income varies depending on the value of the stocks, shares and other assets that your units represent.
You can switch between your provider’s different funds. Unit-linked annuities are more volatile than with-profits annuities. You should ONLY consider them only if you are happy to except a high risk investment. . If you were not provided with the correct communication materials to explain your pension income was subject to investment performance risks you may have been mis sold your pension annuity and be eligible for compensation.