You may have spotted in the press the latest industry ‘scandal’ around potential mis-sales of annuities. I say mis-sales rather than mis-advice as it appears much of the problem was around poor information and self serving bum steers given to customers purchasing an annuity on a non-advised basis rather than via professional advisers. Insurance and pensions companies are the focus of attention. For those of you who think they may have been mis-sold an annuity you might wonder how much compensation you might get.
The FCA have asked a number of pension providers to go back and review files as far back as 2008. However, if you feel you were mis-sold there’s nothing stopping you from raising a complaint regardless of the timing or nature of the issue.
If your complaint is valid how will you be compensated? Given the fixed nature of an annuity it’s impossible to unpick it, and the Government has just put a stop to any second hand annuity market.
There are precedent for those prepared to work through past Financial Ombudsman decision relating to annuity sales. Here are a couple which will give you an idea of how compensation is calculated.
Decision 1 – this followed the death of the annuity holder where no provision for the spouse was made. As the annuity died with the annuitant the firm in this case was liable for the full purchase price of an annuity that the complainant wished to have been set up plus compensation for missed payments, plus appropriate interest.
The summing up:
“My final decision is that I uphold Mrs G’s complaint. I order The Wright Financial Consultancy (WFC) to arrange and pay compensation to Mrs G as follows:
We have established from the annuity provider that they would have provided to Mr and Mrs G for a joint life non-escalating annuity payable without reduction on Mr G’s death and without guarantee based on the annuity rates prevailing on 17 February 2009, the date of the final illustration which established the annuity currently being paid. The annuity would have been £6,895.92 (gross) per year or £574.66 (gross) per month.
We have established that the cost of purchasing an annuity of £6,895.92 per annum for Mrs G from the same provider as 1. where the annuity is, payable monthly in advance without escalation or guarantee, would be £70,155. I order that, in full and final settlement of the complaint, WFC pay Mrs G compensation of A + B + C, where: A =£70,155 being the cost of the annuity described in 2. above. B =The value of missed income payments from the last annuity payment on 23 December 2013 to the date of payment of the redress, calculated daily, on the revised joint life annuity basis. C = Interest on the missed payment at 8% per annum simple calculated from the date each payment fell due to the date of settlement. In addition, I order that WFC pay Mrs G compensation of £400 for the distress and inconvenience caused through the loss of a significant proportion of her income and for the time taken in resolving the complaint.”
Decision 2 – where an enhanced rate was not advised on the instruction is for the firm to fund a PLA to bridge the gap between what was effected and what could or should have been effected (to represent future loss) and an additional payment plus interest to account for past loss based on the findings.
The summing up:
“I order Investec Wealth & Investment Limited to compensate Mr K now using the following method of redress –
Future loss Pay an amount to a competitive annuity provider, so Mr K has an additional income of £496.72 a year gross going forward. If for any reason this cannot be established (as below minimum purchase costs) the cost of the annuity less 20% should be paid now as a lump sum to Mr K. If a PLA is used to compensate for the net of tax income Mr K has lost then no deduction should be made to the cost of providing that annuity.
Past loss 1. When the annuity or redress has been established/paid then calculate the additional income payments (£496.72 a year) netted down for tax at Mr K’s marginal rate from 2007 until the date of calculation, plus interest at 8% a year simple (as previously agreed) until the date of calculation. 2. The past loss of income should be paid as a lump sum to Mr K with interest added until date of payment at 8% a year simple.”
Ok there’s a bit of maths involved but it should give anyone confidence that it’s not just past losses which are compensated, you should be put in a better position to cover future losses as well.
That could be quite a lot of money, and far better than using what would have been a very questionable and most probably useless second hand annuity market.