Earlier this year it was revealed that almost 200,000 pensioners in poor health would be compensated by two of Britain’s biggest pension firms after being mis-sold annuities which were designed for healthy people.
Savers with health issues such as diabetes or angina missed out on a substantial portion of their retirement income as a result of the mis-selling.
After the media warned that many people were being sold the wrong annuities, Standard Life and Prudential each released statements admitting to mis-selling some products to thousands of customers. Many of the pensioners affected will have gone on to earn financial redress as a result of the scandal.
So, what exactly is annuity mis-selling and how do you know if you’ve been affected? Also, what should people who are purchasing annuities look out for?
What is annuity mis-selling?
An annuity is a type of financial product that’s purchased for retirement. Essentially, the person approaching retirement will hand their pension pot over to the annuity firm in exchange for a guaranteed income until they die.
If they live longer than originally anticipated, this can work in their favour because they’ll keep earning the guaranteed income and this income may eventually exceed the money they have saved. However, if they pass away earlier than predicted, the insurer may keep the remainder of the pension pot or pass it onto the customer’s relatives. This outcome will depend on the agreed upon terms and conditions.
Annuity mis-selling occurs when a customer is sold an inappropriate financial product for their circumstances or they’re not given an appropriate amount of information before they purchase an annuity.
How much can a mis-sold annuity cost?
Last year the Financial Conduct Authority (FCA) conducted a pension mis-selling investigation following accusations of wrongdoing from some large pension firms. Although it refused to reveal the names of the companies it was investigating, the regulator estimated that the average customer with a pension pot of £25,000 would have lost between £120 and £240 in annual payments. Over the course of a typical 25-year retirement, this would equate to £6,000.
This is just one example, however, and the amount of money a customer could lose due to annuity mis-selling could be in the tens of thousands.
A mis-sold annuity can make a substantial difference to the pension pot of the person involved, sometimes seeing them adopt a different lifestyle than they would have enjoyed had they received the correct annuity for them.
How do I know if I’ve been mis-sold an annuity?
There are many signs that you may have been mis-sold an annuity. If you can identify with any of the following, this may indicate that you’re entitled to compensation.
Your health wasn’t taken into account
Annuity providers tailor their pension products to take the customer’s life expectancy into account. If you suffer from a health condition that could impact your life expectancy, this needs to be taken into consideration. Failure to factor this into your annuity product could see you receiving less money each month than you’re entitled to. This is because the annuity will spread the money you’ve saved for retirement over a longer period of time than you are likely to live.
You weren’t provided with a range of options
When seeking financial advice, some people are encouraged to purchase a particular annuity without having seen other options first. Although it’s perfectly acceptable for your financial advisor to point you in the direction of the best deal for you, they should ultimately give you a selection of annuities to choose from. If your advisor fails to do this, they may be guilty of mis-selling.
You weren’t made aware of hidden charges
If you select a particular annuity only to uncover hidden charges at a later date, you may have fallen victim to financial mis-selling if your advisor failed to notify you of these charges.
How do I obtain compensation if I’ve been mis-sold an annuity?
If you suspect that you’ve been mis-sold an annuity, please get in touch with the team at Pension Justice.
We have many years of experience in obtaining financial redress for people who have been affected by mis-sold financial products.
Whether you’ve found out that you’re entitled to less money than you were originally promised or you’ve uncovered terms and conditions that you weren’t made aware of before signing up for the product, we know how devastating it can feel to be mis-sold a pension. Please contact our understanding, sympathetic and knowledgeable team today.