£8.5bn compensation for millions cheated in pension sales scam
Millions of scammed pensioners will get a payout
As many as 1,000 savers a day could have been sold the wrong type of annuity when cashing in their pension pots.
The mis-selling left many pensioners penniless when their partners died, which could have been highly profitable for insurance companies.
One expert told the Daily Express last night that the crisis made the recent payment protection scandal “look like a walk in the park”.
The scale of mis-selling is thought to be so widespread that consumer watchdogs have demanded tough and urgent action to “fix the broken market”.
Dr Ros Altmann, the Government’s older workers’ champion, said: “The scale of this scandal is enormous.
“Hundreds of thousands of people bought annuities every year, yet not enough care was taken to ensure it was the right type of product for them.
“When people are buying annuities they are often committing their whole life savings.
“But there is still no protection for customers, no obligation for pension companies to ask basic questions to determine whether the product is suitable.
“The number one priority is now to stop this from happening any more,” added Dr Altmann.
Annuities are a popular insurance product that pay an income for life on retirement.
Dr Ros Altmann says urgent action is needed
Around 400,000 have been sold every year in a market worth around £12billion.
Those in line for compensation include buyers who were not asked basic health questions when signing up.
Pensioners with poor health should have been sold “enhanced” annuity products which pay a higher annual income than standard annuities because of lower life expectancy.
Around a quarter of those who took out annuities last year bought enhanced products.
In 2003 the figure was just two per cent. Suffering from high blood pressure, diabetes, smoking and other diseases may qualify individuals for a much better product.
Research by the National Association of Pension Funds estimated that up to 60 per cent of people are eligible for an enhanced rate but missed out.
Dr Altmann’s dossier reveals around 900,000 people should probably have bought enhanced annuities in the past decade.
They may have lost £5.4billion.
It is also thought 530,000 widows have been left with nothing because an annuity assumes you do not have a partner.
They are likely to have missed out on £2.6billion.
The scale of this scandal is enormous
Meanwhile, perhaps 90,000 savers with small funds could be in line for a refund totalling £450million.
Aviva, Britain’s largest insurer, has already started paying out to around 250 customers who qualified for enhanced annuities. The move is likely to prompt a fresh review among other providers.
Those affected will received an average of £500 in addition to an average increase of £120 a year.
The Association of British Insurers said: “The industry’s own code is very clear on the need to ask customers whether they are married or partnered or have a dependent who might outlive them, and lifestyle and medical conditions that could mean they qualify for an enhanced annuity.
“We have seen no evidence to support the claims being made about widespread problems.”
Dr Ros Althmann
Government’s older workers’ champion
WHEN will the financial services regulator step in to protect people’s pension savings?
Customers are at the mercy of insurance companies selling inappropriate annuities in exchange for hard-earned savings.
This has been going on for years and potentially affects more people than the Payment Protection Insurance scandal.
Every day more than 1,000 people have been left at risk of buying the wrong type of annuity.
The regulator allows the company selling you an annuity to take a “commission” – about 2 per cent can be removed when you buy the annuity you’re offered, without any advice, no clear risk warnings and no proper checks.
The worst of it is that once you’ve bought an annuity, it is usually irreversible.
The annuity market is the biggest regulatory failure I have seen – and it’s still going on.
Despite the Chancellor’s rule changes, pension companies are forcing you either to buy an annuity or income drawdown product if you want to take some money out of your pension fund, even though the law no longer requires it.
Companies can offer you their standard annuity, without having to explain the risks clearly.
It’s time to protect people properly and impose a duty of care on those selling annuities.
If the annuity you’re offered assumes you’re in excellent health you should be told this.
Government and the regulator must end this scandal now.
Compensation for mis-selling will be difficult.
Until customers are protected, there are likely to be many more claims to come.