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Pension annuities mis-selling scandal 'as big as PPI'

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Channel 4 Dispatches presenter Michael Buerk

‘The mis-selling of annuities could be at least as big as the mis-selling of payment protection insurance’, former Government advisor, tells Channel 4 Dispatches

British pensions expert, Ros Altmann made the comments after examining the latest research and a confidential database of annuities.

What’s Your Pension Really Worth? – Channel 4 Dispatches airing on Monday at 8pm also includes:

· An interview with the Pensions Minister, Steve Webb, who accuses insurance companies of making “excess profits” from savers when they come to retirement

· Details of a confidential database of annuities revealing:

· existing customers were offered £3,000, £8,500 and even £10,000 less per year by their main pension companies than what they could have got from shopping around

· In some cases the annuity rate of payment offered to pensioners were so low, they would need to live till nearly a hundred before receiving anything other than their own money

· Exclusive data provided to Dispatches by Scottish Widow that suggests on average those in work need to save an extra £644 a month in to their pension to meet their annual desired retirement income of £25,200

· Case Study: Scottish Life apologises to the family of Mr Adams after they didn't do enough to make sure that he understood the annuity he was buying, which had left his widow without a pension provision

Concerns about of Pension Annuities

Channel 4 Dispatches has discovered what can happen if you do rollover and stick with your pension company rather than shop around. We obtained a confidential database of 130 recent annuity deals.

In almost every case the rates offered by the main pension companies to their existing customers was worse than what they could have got from shopping around.

One company offered a customer over £3,000 a year less in retirement. /Another customer was offered £8,500 eight and half thousand pounds a year worse off by sticking with their pension company and then there was the customer whose loyalty was rewarded with an offer that would have left them almost £10,000 a year poorer.

“This is a deeply dysfunctional but incredibly profitable market for certain parties. It's deeply dysfunctional for the consumer but it seems to be working very well for those who are selling annuities. “

In new research for Dispatches former government adviser Ros Altmann discovered just how poor value some of these deals are.

Ros Altmann says: “For the bottom 5 or so companies you have to live till nearly a hundred before they're paying you anything other than your own money… Having done the figures and worked through this research it seems to me that the mis-selling of annuities could be at least as big as the mis-selling of payment protection insurance.”

The Association of British Insurers deny claims of mis-selling and say its members publish rates and advise customers to seek independent advice.

Pension Minister: Insurance companies making “excess profits”

The Pensions Minister Steve Webb has accused insurance companies of making “excess profits” from savers when they come to retirement.

Webb tells Channel 4 Dispatches that insurers are taking advantage of fact that their consumers don’t shop around, leading to many missing out on the best deals.

The programme also investigates concerns retirees are getting poor deals on their annuities – the financial products that turns an individual’s pension savings into an annual retirement income.

Responding to questions about insurers offering annuities at uncompetitive rates, Steve Webb says:

“Companies have clearly traded on the fact that consumers don’t shop around… I think they are making what I suppose an economist would call, excess profits..... they saying, taking advantage of people staying put.”

“I think successive governments have failed to ensure that consumers get good value for money in the annuity market and that’s something we’ve got to change.”

He promised to clean up the annuities market, adding: “I think that we have to make the market work and those sorts of profits will go.”

“The Financial Conduct Authority, which is the regulator of this market, has only been in existence in its current form for six months, has got this pretty near the top of its list. So, we’ll see further action.”

The Association of British Insurers deny members are making excess profits and say that annuities are a long term product which are difficult foe members to make a return from.

Scale Of The Pension Savings Shortfall

Channel 4 Dispatches also reveal new data that shows the sheer scale of the pension savings shortfall.

On average those in work need to save an extra £644 a month in to their pension to meet their annual desired retirement income of £25,200.

This is giving rise to a national savings shortfall of £230 billion per year – more than double the NHS budget, according to exclusive data provided to Dispatches by Scottish Widows.

Channel 4 Dispatches also commissioned a survey asking 2,000 people about their retirement plans:

· One half said they wanted at least £15,000 a year or more when they stopped working.

· For the average 20 year retirement, that means, on top of a state pension, they would need to save up at least £150,000 during their working life.

· However half those surveyed said they hadn’t given much or any thought as to where that money would come from.

The Association of British Insurers deny claims of mis-selling and say its members publish rates and advise customers to seek independent advice.

Case Study – Mr Adams Mis-sold Pension Annuity

The lack of understanding of what annuity you’re buying can sometimes have serious consequences.

Frank and Maureen Adams were married for 42 years. Sadly Frank died a year ago aged 73 after a long battle with cancer.

Maureen says: “Oh, [he was] a very hard working man.

His daughter Elyse says: “He provided for the family and for the future of the family as well. That’s how he thought. “

When he retired in 2005, Frank had amassed a pension pot of 29 thousand pounds and used it to buy an annuity from Scottish Life – which gave him an income of £1,679 a year.

“He always used to say Maureen you’ll be well cared for if anything ever happens to me“ says Maureen.

But within weeks of Frank’s death the pension payments stopped.

Elyse says: “I applied for the pension as what – pot as what I thought was there that dad had always said was going be there, and that’s when they sent me the letter to say I’m sorry but there’s nothing more - your dad took out a single annuity.”

This came as a massive shock to the family. Maureen says: “Your meant, you think you’ve got something and the and then you turnaround and someone says you haven’t got it.”

The family say Frank didn’t understand he was buying a policy that wouldn’t pay out to Maureen when he died.

Mr Adams had returned a form instructing Scottish Life to sell him a single life policy. It contained one reference in the small print that it was a “single life” product.

Maureen says: “Why in the world did he go work and pay that and then when he dies nobody could get anything from it because it died with him? I just couldn’t see no sense. “

Elyse says: "He wouldn’t have signed that, knowing that, I don’t believe that for one second…… I think they should make the information more clear explain themselves a lot clearer …(OV) …so as people can understand what they are actually signing for.“

Scottish Life told Dispatches:

“We rejected Mrs Adams’ original complaint because the form which her husband returned to us instructed us to establish a single life annuity from the options available.

Having reviewed our records again, it is a fact that Mr Adams also sent us his wife’s birth certificate and their marriage certificate, and this should have alerted us at the time that, despite his instructions to the contrary, Mr Adams may have actually expected his pension to also include benefits for his wife. We should have sought clarity on this point and we regret not doing that. We believe the right thing to do is put in place the spouses’ pension that would have been payable to Mrs Adams. We will pay Mrs Adams £732.06 per year and this will be backdated to December 2012.The service that Mrs Adams’ received has fallen well below the standards that we usually provide, and we would like to apologise unreservedly for any distress we have caused Mrs Adams and her family.”

Ros Altmann, former Government advisor says:

“This is the first time I have ever seen an insurance company agree to change the terms on which an annuity was issued and I have to wonder whether, without the involvement of Channel 4, this would have happened. I am delighted for Mrs Adams that her husband's wishes have finally been honoured and that Scottish Life have done the right thing.”

Notes to Editor

What’s Your Pension Really Worth – Channel 4 Dispatches, Monday 18 November at 8pm

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