Tens of thousands of pensioners could win compensation because they were not made aware that they could get a higher income by shopping around for an annuity.
Procedural failures by scheme trustees, pension providers and independent financial advisers (IFAs) who arranged annuities could all give rise to complaints if they left retirees unaware of their right to get a better deal from a different provider, according to Sackers, a specialist pensions law firm.
Campaigners have long argued that the process of buying an annuity is flawed, pushing confused pensioners into substandard annuities for the rest of their lives. Had the right to shop around for a better deal, known as the open market option, been made clear to them, healthy retirees could have increased their income for life by up to 20pc.
Smokers, people who are overweight and those with medical problems can get income enhancements of 30pc or more, depending on the seriousness of their condition.
There are three main ways in which pensioners’ funds are converted into annuities: by the savers themselves taking an annuity from the provider that runs their personal pension; by the trustees of an occupational scheme arranging an annuity for its scheme members; or where the saver gets advice from an IFA who arranges the purchase for them.
Any of these avenues could potentially lead to a claim if those supplying the annuity have not done their duty properly and the individual would have been better off if they had gone elsewhere.
Very few claims have been made to the Ombudsman, but evidence of maladministration by trustees and pension providers is growing.
An investigation by the Pensions Regulator nine months ago found that 6pc of occupational pension schemes had seriously breached rules by not telling scheme members that they could get more by shopping around. It found that three in 10 schemes had breached the rules to a lesser extent.
A report by the Financial Services Authority (FSA) in 2008 ( now the Financial Conduct Authority (FCA) found that the letters notifying customers of their right to shop around for a better deal sent by almost 40pc of pension providers breached regulations. Many pension companies make more profit from selling poor-value annuities than they do on the pension itself.
‘Trustees are not under a duty to advise the scheme member, but disclosure regulations say they do have to tell them that they have the right to exercise the open market option,” said Nick Couldrey, a partner at Sackers. ”They should also advise members to get independent advice. If they do not, and the member suffers loss, there is a potential case of maladministration. Were such a case to be taken to the Ombudsman, there would be a good chance of success, although it would depend on the exact circumstances.
‘Trustees have a duty to make salient points clear in documentation sent to scheme members. If a member argued that the notification of the right to exercise the open market option was buried in the small print of a lengthy document, the test the Ombudsman would apply would be, ‘Was it reasonably clear?’ If it was not, the trustees would not be able to rely on it.’
Experts said the Financial Ombudsman Service took a similar view in the mortgage endowment mis-selling scandal, where it held that warnings to customers contained in small print were insufficient if they were unlikely to have been understood.
Claims of maladministration against trustees or personal pension providers should be taken through the Pensions Ombudsman, while those against IFAs should be taken through the Financial Ombudsman Service.
There is no charge for making a claim and no costs can be awarded against a person making a claim. But the individual should exhaust the trustee or provider’s internal complaints procedure before claiming.
Tony King, the Pensions Ombudsman, said: ‘A complainant could bring a claim against a personal pension provider who gives duff information about the open market option. If they did not properly make them aware of their options, that could be an act of maladministration.’
One retired Sunday Telegraph reader, who did not want her name published, intends to make a claim after her pension provider misinformed her about her right to shop around.
She was turned down when she asked her provider if she was entitled to an enhanced annuity on account of her polycystic kidneys, a condition that killed her mother at 71. Her provider told her that she could get an enhancement only if her condition was likely to kill her in the next 12 months. She is taking the matter up with the Pensions Ombudsman.
A spokesman for Missoldannuity.co.uk, a claims handler, said: ‘People may feel comfortable going to the Ombudsman directly and this will work out cheaper for them if they win. But if they do want some assistance in dealing with the process, we are there to help them get their claim off the ground and will not charge them if they do not win.’
The Ombudsman is free while Missoldannuity takes 25pc of any win. What’s more, if successful the Ombudsman would award compensation running up to the level of the annuity they could have got had they shopped around.
Even healthy retirees can get more if other annuity providers pay more than their pension provider. For example, a 65-year-old male who saved £50,000 with Axa and took his pension from Axa would get £2,838 a year. By shopping around, the same pension fund would have bought an income of £3,348 from Aviva, the best deal on the market at the time of going to press – an increase of 18pc.
People with health impairments or smokers could get even more. ‘We estimate that 40pc of the population are entitled to an uplift on account of factors such as lifestyle or their medical condition, yet only 10pc are getting one,’ said Andrew Megson of Partnership, a specialist annuity provider.
If the saver with £50,000 was a smoker, he could have got £3,910 a year, an increase of 37pc, while someone who had suffered a stroke could have got £4,136 by shopping around, 45pc more. You only get one opportunity to buy an annuity, which is why the right decision is crucial.
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Mis-Sold Investments – Midlands, UK
Maple Leaf Financial have a specialist team of solicitors dedicated to dealing with mis-sold investments from, PEP’s, ISA’s, whole life policies, see list below. We are happy to review these Investment products and to claim compensation for our clients where appropriate.
Each investment case is different and they are all assessed individually. Sometimes we can claim because investments were simply unsuitable and they were mis-sold. In other cases it may be because of technical shortcomings in contracts, regulatory issues or a combination of these factors.
Tim Capper reports on Financial Mis-Selling for Maple Leaf Financial. Our aim is to ensure you get honest advice and proper guidance to ensure a suitable recommendation can be made to pursue a financial claim
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