Question on Teletext Looks wrong

ffacoffipawb

A pension pot of £250k and an annuity of £8,000 for a 65 year old gives an annuity rate of 3.2% which looks rubbish for a level pension, 10 year guarantee, no spouse pension.

This seems very strange to me, and the rate not questioned in Hargreaves Lansdown's TYom McPhail's reply ....

http://www.teletext.co.uk/Finance/moneyadvice/default.aspx

Dear Teletext, My husband, who died in 1996, amassed £250,000 in a Prudential pension.

When he was 65 he took, without any advice, an annual pension of £8,000 with a 10-year guarantee for me.

He died at 70 and I got four years of his pension. In total we took only £80,000. I think this was grossly unfair. Is there anything I can do? MA Williams, address supplied.

Pension payout shortfall


Viewer Mrs Williams's situation is clearly very unfortunate, says pensions expert Tom McPhail.

"The fact that the total return on her deceased husband's pension fund is considerably less than the total amount saved up must be very disappointing.

"If it could be demonstrated Mrs Williams's husband had received poor advice then she would almost certainly have a strong case."

Regulations governing advice mean Prudential must show they made viewer Mrs Williams's husband fully aware of the death benefits he signed up to.

Expert Tom McPhail said: "Otherwise she may be able to claim compensation."

Unfortunately, because viewer Mrs Williams's husband made his investment decision without taking advice, it is very unlikely there is a case for mis-selling, Tom McPhail says.

"Regrettably I believe there is very little she can do to improve the terms.

"Her husband appears to have chosen annuity terms so if she outlived him, she would only receive an income for 10 years after the start of the pension."

If viewer Mrs Williams's husband had lived 11 years after taking a pension the income would have stopped on his death, expert Tom McPhail says.

"The alternative would have been to set up a pension which paid out for the remainder her life as well as his.

"I expect her husband got a higher starting income than would have been the case if he had a continued pension payable to her after his death."

Viewer Mrs Williams's husband could have opted for a higher starting income and a lower survivor's pension - which seems to be what he did, says pensions expert Tom McPhail.

"Another option would have been to take a longer potential pension payment period, but with a low starting income.

"I regret that this is not the first time I have come across a situation of this nature."

Whilst viewer Mrs Williams can appeal to the goodwill of the pension company, it is very unlikely that she could force them to make any further payments, Tom McPhail says.

"This does illustrate the importance of researching your options when setting up a retirement income, particularly if you are buying an annuity."

Tom McPhail is head of pensions research at Hargreaves Lansdown

EdInvestor

Certainly those rates look wrong for the period in question, mid 80s,when interest rates were much higher. A pension of 18,000 pa. with a total payout of 180,000 might be more like it.

ffacoffipawb

EdInvestor wrote: »

Certainly those rates look wrong for the period in question, mid 80s,when interest rates were much higher. A pension of 18,000 pa. with a total payout of 180,000 might be more like it.

Pension commenced in 1991 - when the UK had an even more incompetent chancellor than the last two and the UK was booted from the ERM and interest rates (even long term rates used for annuities) were in double figures.

Something looks very wrong and H-L's expert should have commented on it.

Paul_Herring

ffacoffipawb wrote: »

Pension commenced in 1991 - when the UK had an even more incompetent chancellor than the last two and the UK was booted from the ERM and interest rates (even long term rates used for annuities) were in double figures.

http://www.investegate.co.uk/invarticle.aspx?id=30710:

Annuity rates peaked in 1991 when interest rates rose to 15% and have been steadily falling ever since.

Also http://www.annuity-bureau.co.uk/Annuity+Rates/Historic+annuity+rates/ slightly disagrees, but still puts it at around 10% :


(though, granted, the notes indicate it's not the same as the person mentioned in the OP)