Sunday, 23 October 2016


More than 100,000 people who bought an annuity since 2001 could get compensation worth thousands of pounds because insurance companies sold them the wrong product and did not do enough to help them buy the right one. If you have an annuity you should read this blog.

A new report from the Financial Conduct Authority has found that some firms did not always ensure their customers got the best annuity deal. If they did not then compensation may be due. That compensation could be thousands of pounds for the past and they will also get a higher income for life in the future.

The people who are definitely affected 
  • Bought an annuity at some time from July 2008
  • Bought it from the same insurance firm where they saved up their personal pension
  • Had a health issue - including smoking - when they bought it
  • Were sold an annuity that did not take account of that health issue

If that is you then you should ask the firm who sold you the annuity for compensation to cover the money you have lost. The FCA estimates it could be worth on average between £120 and £240 for every year the annuity has been paid. It could be a lot more. Over a number of years even the average amount could, with interest, be in the low thousands of pounds and the annuity could be increased by hundreds of pounds each year for the future.

There may be hundreds of thousands of others who can also get redress. See BROADER CASES below.

Who can get redress?
The people affected bought their annuity from the same company they saved their pension with. For example, they saved up in a personal pension with Standard Life and at pension age they bought a Standard Life annuity. I mention Standard Life because it is the only firm so far to admit it has been asked to review its cases. But all annuity providers are in the frame. It does not matter who you bought it from. Other major providers in the past include Prudential, Friends Provident, Legal & General, Norwich Union, Scottish Amicable, Scottish Equitable, and Scottish Widows. But these are just examples to jog your memory. It does not matter who sold you the annuity. If you fulfil the conditions you could get compensation.

What went wrong?
An annuity is a pension for life. You pay the insurance company a lump-sum and it promises to pay you an income every month until you die. A standard annuity assumes you will live an average length of time – at age 65 that is now around 20 years. So your lump-sum has to be spread over that period. But if you have a health issue which will shorten your life the annuity will be paid over fewer years. So you should get more each year. These are called ‘enhanced’ annuities – or sometimes ‘impaired life’ annuities.

The health issues can include smoking, cancer, heart problems, diabetes, or dozens of other conditions which are known to shorten life. The increase in your annuity can be anything from 5% to 100%. Perhaps more in some cases. Smoking for example used to give an increase of up to 17%.

So if you had a health issue but were sold an annuity for a person with no known medical conditions you would have got less money each year than you should have done.

Insurers failed
In the past the insurance companies did not encourage customers to declare all their health issues nor inform them properly that a standard annuity may be too low. They used various techniques to encourage customers to use a pension fund to buy a standard annuity from them.

Research by MGM Advantage found that more than two out of three annuity buyers should have had an enhanced annuity but insurers who sold their own customers an annuity only paid enhanced rates to one in fifty. 

The Financial Conduct Authority found that some firms did not give clear information about enhanced annuities and sometimes understated the extra a customer with health issues might get. Some firms that did not sell enhanced annuities did not even mention them to customers.

So if you bought your annuity from the firm you saved your pension with and had a health issue that was not taken into account you have a clear case for claiming compensation. Remember that being a smoker is a health issue that should have been taken into account.

The official line is that claims can go back to July 2008. But the regulator has confirmed to me that claims can go back further. The previous regulator – the Financial Services Authority – published a report in August 2001 Buying a Pension Annuity and the trade body the Association of British Insurers issued guidance on the subject 8 August 2001. So people could get redress for annuities which were mis-sold back to then. So if you bought your annuity between August 2001 and June 2008 you should also put in a claim.

What to do next
  • Contact the firm where you saved up for your pension or, if you cannot remember it, your current annuity provider.
  • Give the reference numbers of your pension plan (if you still have them) and the annuity you currently get. If you have not got either then give as much information as you can including your full name and date of birth and all the addresses you have lived at since the date you are claiming from.
  • Mention the Financial Conduct Authority Review of Annuity SalesPractices TR16/7 published on 14 October 2016 (and the 2001 FSA report and ABI guidance if you bought the annuity before July 2008)
  • Say you believe you were mis-sold a standard annuity when you should have been sold an enhanced annuity due to your health conditions – list those conditions and remember to include smoking if you were a smoker.
  • Say you were not given clear information about the benefits of looking at the whole market to get the best deal.
  • Say you want your case to be reviewed and compensation paid for your past loss and you want your annuity to be enhanced in the future.
  • If having too little money has caused you distress or damaged your health further – perhaps by not being able to afford adequate heating or food – explain those circumstances and ask for compensation for that as well. 
If your claim is rejected, or partly refused, or you do not get any answer at all after eight weeks you should refer your case to the Financial Ombudsman Service . It is quite likely the insurance firms will be difficult. So don't take no for an answer!

How many cases
The official line is that 90,000 people have been mis-sold an annuity. But that only includes customers of seven companies back to July 2008. Those firms sell two thirds of all annuities. If we add on the other third the number rises to 135,000. And if we take sales back to 2001 then it could be 250,000 who were mis-sold.

Why claim?
The official line is that people with annuities who think they may have a claim need do nothing. The firms involved will review their sales and make contact with individual customers who have a claim. But those reviews only go back to July 2008 and only cover health issues. There is no guarantee that all the customers affected will be contacted. So it is safer to put in your own claim for compensation.

The Financial Conduct Authority concentrated on people who had a medical condition at the time they bought the annuity which would have led to them getting more money each year. But one annuity specialist has said to me that is only part of it. He believes anyone who bought an annuity from the same firm they saved up their pension with should consider making a claim.

That is for two reasons. 
  • If your own pension provider offered you an enhanced annuity it may not have been the best on the market. Different firms and different undertakers offer different rates for different conditions. So a firm that offered the best smokers rate might make a poor offer to a diabetic. So if you did not look around the whole market you probably did not get the best deal. 
  • The annuity offered by your own firm was very unlikely to be the best on the market. Standard annuities vary widely and if you do not look across all providers you cannot be sure you will get the best annuity. Firms were very skillful at leading customers to take their own annuity rather than going to the market. Only a half to two thirds looked at the offerings of other firms. And many of those ended up with their own pension provider.
Guidance on the importance of giving customers what was called the 'open market option' began in August 2001 and was strengthened after that. So anyone who did not get independent advice and look across the whole market could have got a better deal. In many cases that will be the fault of the insurer who did not make that information clear. When it sold you tits own annuity that was probably a mis-sale.

If you think these broader mis-sales may apply to you then follow the advice earlier about putting in a claim. 

Once all these broader options are taken into account the number of mis-sold annuities could be in the millions. Sadly many of those affected, especially those with health issues, could now be dead. It may be possible for their heirs to put in a claim, especially if probate has not been granted or their death was relatively recent.

24 October 2016
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Wednesday, 19 October 2016


Millions of disabled people on state benefits will get benefit rises next April that are less than the price of a first class stamp.

Their benefits will increase by 1% next April in line with the September rate of inflation measured by the Consumer Prices Index. That rise will be the first for two years because in April this year their benefits were frozen after a period when inflation was zero or negative.

But for many the April 2017 rise in their weekly benefits will be barely be enough to buy a second class stamp never mind a first class one.

More than half a million pensioners on the lower rate of attendance allowance will get an increase from £55.10 a week to £55.65. That 55p rise is just enough to buy one second class stamp. By April next year it may not even do that. Even the 880,000 who get the higher rate of £82.30 a week who will get an extra 80p will only be able to buy one 75p second class stamp for a large letter.

If their carer is under pension age they will be among 775,000 who get an increase in carer’s allowance from £62.10 to £62.70. But their rise of 60p will be 4p short of the current price of a 1st class stamp.

Younger disabled people on the lowest rate of Disability Living Allowance, 740,000 of them, will see their weekly payment rise from £21.80 to £22. They will have to save their increase for three weeks to afford one 55p second class stamp.

In some ways these groups are lucky. Millions of other face a second year of their benefit being frozen. Child benefit, Jobseeker’s Allowance, income support, housing benefit, and other working age benefits for people who are not disabled will remain frozen in April 2017. Those benefits were frozen last April and will not rise again for another three years until April 2020. And many on benefits will see a fall in their income as the latest round of cuts is applied.

The one group who will be able to afford to send parcels rather than letters are state pensioners. The will get a 2.5% rise under the triple lock which guarantees a rise by the highest of prices, earnings and 2.5%. The rise in prices was 1% (CPI) and in earnings was 2.4% (KAC3 revised). The 2.5% increase will mean the basic state pension rises by £3 a week from £119.30 to £122.30 and the new state pension will increase by £3.90 a week from £155.65 to £159.55.

Those on the means-tested pension credit will get a rise of 2.4% (£3.75 single, £5.70 couple) and those who get on the savings credit part of it will get lower increases.

More details of the April 2017 benefit changes which have now been announced

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29 November 2016


Inflation hit 1% in September (CPI) and the revised rise in earnings May to July (KAC3) was 2.4%. So unless the new Government changes the rules or modifies the policy benefits and pensions will be uprated by four different rates from Monday 10 April 2017. The rates will be 0%, 1% and 2.5% with a fourth rate for pension credit, probably 2.4% for the guarantee credit but less for the savings credit. All amounts are rounded so may be slightly more or less than the stated rate of increase.

These figures are my estimates on the current rules. The Government could change the rules. The actual amounts will be announced around the time of the Autumn Statement which is on 23 November.

Some benefits will be frozen. The Summer Budget 2015 listed the working age benefits that would be frozen for four years from 2016/17 to 2019/20. They are
  • Child Benefit
  • Jobseekers’ Allowance
  • Employment and Support Allowance
  • Income Support
  • Housing Benefit under women’s state pension age
  • Local Housing Allowance rates
  • Child Tax Credit
  • Working Tax Credit
  • Universal Credit
Any disability premiums or extras paid with any of these benefits will NOT be frozen. They will rise by 1%.

It is likely that in England council tax support, paid by local authorities, will also be frozen for people under women’s state pension age. In Scotland and Wales that may not be true.

Women’s state pension age at April 2017 will be 63 years and 9 months.

Rise by 1%
Benefits which are not frozen will rise by the rate of CPI inflation for September 2016 which was 1%.

They include
  • Attendance Allowance - up by 80p a week for higher rate and 55p a week for lower rate
  • Personal Independence Payment - up by 80p a week for higher rate and 55p for lower rate
  • Disability Living Allowance - up by 80p, 55p, or 20p a week for lowest rate
  • Carer’s Allowance - up by 60p a week
  • Bereavement Allowance - up by £1.15 a week
  • Maternity Allowance - up by £1.40 a week
  • Statutory Maternity/Paternity etc Pay - up by £1.40 a week
  • Statutory Sick Pay - up by 88p a week
  • All parts of the state pension which are NOT Basic State Pension or New State Pension. Details below.

Employment and Support Allowance falls partly under frozen benefits and partly under benefits that will be raised by 1%. The basic ESA of £73.10 a week is frozen. The extra paid to those who cannot work - the support component - will rise by 35p a week, an increase of 0.3%.

Rise of 2.5%
The basic state pension and the new state pension will rise by 2.5%. They are covered by the so-called triple lock which guarantees an increase in line with prices measured by the Consumer Prices Index, earnings, or 2.5% whichever is the highest. CPI was 1%, earnings rose by 2.4%, so they will increase by 2.5%.

That will mean
  • a rise in the basic pension of £3.00 from £119.30 to £122.30
  • a rise in the full new State Pension of £3.90 to £159.55.
Any extras paid with the basic pension – SERPS, State Second Pension (both known as additional pension), graduated retirement benefit, and extra pension for deferring a claim will rise by 1% in line with the CPI.

Any amount of the new State Pension which was above £155.65 in 2016/17 will also rise by only 1%.

It is worth noting that the Triple Lock only adds 15p a week to the state pension rise. The law currently provides for them to rise by the increase in earnings, That was 2.4% and would have resulted, after rounding, in a basic state pension of £122.15 and a new state pension of £159.40.

Rise by a different amount
Pension Credit is an anomaly in the benefit system. There are two parts to it.
  • Guarantee credit paid to men and women who are aged from women’s state pension age to 65.
  • Savings credit paid to men and women aged 65 or more who reached state pension age before 6 April 2016. Savings credit is NOT paid to anyone who reached state pension age from that date. in 2016/17 or later.
Based on past years,
  • The guarantee credit must rise by at least the rise in earnings and that was 2.4% (KAC3 May-July revised) which would add £3.75 a week to the single rate and £5.70 to the couple rate. It is conceivable but less likely that it could increase by the £3.90 a week rise in the new State Pension which would be a 2,5% increase.
  • The savings credit will almost certainly rise by a smaller percentage in order to claw back some of the increase in the guarantee credit.
We will not know the rates of Pension Credit until late November.

Compared with April 2016
In April 2016 all benefits except the state pension were frozen. Some by the decision announced in the Summer 2015 Budget and others because CPI inflation in September 2015 was -0.1% which led to a zero rise. So for those benefits that will increase in April 2017 it will be their first rise for two years.

The basic state pension rose by 2.9% in line with earnings. That £3.35 increase was more than the £3.00 expected in April 2017. The extras paid with the basic state pension were frozen.

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