Thousands were given a standard annuity when they actually qualified for a more generous enhanced annuity. Find out how much you could claim.
Two of the UK’s biggest insurance companies will pay compensation to pensioners sold the wrong type of annuity.
Prudential and Standard Life have agreed to look at thousands of policies sold to pension savers on a non-advised basis dating back to 1 July 2008.
The move follows an investigation by the Financial Conduct Authority (FCA) last year, which found some firms had given ‘insufficient information’ to existing customers about qualifying for an ‘enhanced’ policy.
Enhanced annuities pay out a higher income to those who have health problems compared to standard annuities on the basis that the person insured has a shorter-than-average life expectancy.
The FCA announced it was launching a formal redress scheme to compensate people impacted by the mis-selling it uncovered, but until now it was not clear which companies were involved.
How much compensation could you get?
A pensioner who purchased a standard annuity with an average £25,000 pot, when they could have qualified for an enhanced one, would have lost out on between £120 and £240 in annual pension income.
It’s estimated that those impacted will receive an average of £2,000 in redress.
Five other annuity firms were also implicated in the FCA’s review, so even if you weren’t a customer of Prudential or Standard Life you may still be owed compensation.
The FCA estimates that 90,000 may have been sold the wrong annuity policy, but Hargreaves Lansdown believes the actual figure will be nearer 200,000.
Standard Life has set aside £175 million for the payouts, but Prudential potentially has a larger bill as experts point out that the firm sold up to four times more annuities.
How to claim
If you bought an annuity without any help from an advisor after 1 July 2008 and you think you should have qualified for an enhanced policy because of your health then you could be in line for compensation.
If you are a Prudential or Standard Life customer you don’t need to do anything.
The firms have said they will contact affected customers if it finds evidence of mis-selling. However, it could take a while for you to see any money.
Standard Life has said the ‘majority of cases’ will be settled by the end of 2018 and, according to the BBC, Prudential has said it will take up to two years to go through all the cases.
A high number of annuity mi-selling victims are expected to have died, but companies will be forced to track down families and pass on the compensation.
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Should you buy an annuity?
Annuity rates have been falling for several years now and with the new pension freedoms you have other options for generating an income in for your retirement.
However, if you decided to buy an annuity it’s important to get the best deal and that involves shopping around.
Tom McPhail, Head of retirement policy, Hargreaves Lansdown commented: “The way to avoid this situation arising in the future is for customers to shop around on the open market.
“Worryingly, FCA data published only yesterday shows that over half of investors retiring today are still buying their retirement income arrangement from their existing pension provider, which begs the question as to whether the problem has actually been fixed.”
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