Mis-sold a pension - advice please

welnik

Hi, I'm wondering whether I have a case for some sort of claim against an insurance company.

20 years ago I was sold an annuity pension from one of their reps. After about 10 years, I decided to increase the contributions. Un benownst to me, the same rep of the insurance company set up a personal pension policy rather than adding to the first one. I take it there would have been better commission so that's why he did it. I was also sold some very expensive term assurance.

I know that with the Annuity, I could take 33% in cash at retirement but only 25% with the personal pension.

I am about to make it "paid up" as I would get better returns in an ISA and at least then I can spend the money as I wish and not have to buy an annuity.

Any advice greatly appreciated.

cheers
Wel

dunstonh

I'm afraid you are missing out on a lot of information and making wrong conclusions.

20 years ago I was sold an annuity pension from one of their reps. After about 10 years, I decided to increase the contributions. Un benownst to me, the same rep of the insurance company set up a personal pension policy rather than adding to the first one. I take it there would have been better commission so that's why he did it. I was also sold some very expensive term assurance.

20 years ago, personal pensions didn't exist. You had Retirement annuity contracts. In 1988, Retirement annuity contracts closed for new business and were replaced with personal pensions. So, when you went to "top up" your pension, the adviser had no choice but to use a personal pension.

He would have earned from a top up or new business as commissions are typically based on the size of the payment.

I know that with the Annuity, I could take 33% in cash at retirement but only 25% with the personal pension.

You couldn't take 33%. You could take a maximum of 3 times the annual annuity. That could result in a lump sum that was lower or higher depending on annuity rates at the time (or if there were guaranteed annuity rates on the contract). In April 2006, the Govt changed that rule and made all pensions have a standard of 25% unless you applied for protection prior to that cut off date.

I am about to make it "paid up" as I would get better returns in an ISA

No you wouldn't. The exact same investment funds in an ISA are available on a pension. They have the exact same tax treatment whilst invested and you can even pay exactly the same charges. A pension and an ISA are just tax wrappers. They dont make or lose money. Its the investments inside the wrapper that does or doesnt perform.

Any advice greatly appreciated.

Before you claim a mis-sale, get your facts right. If you complain against an adviser, even if the complaint is not upheld, it goes on their record. You can hurt someone's career or even just create unnecessary stress for them whilst it gets resolved. You shouldnt go complaining. You need your circumstances reviewed and information updating. You obviously have these questions but rather jumping in with a complaint, why not ask the questions first (hopefully the answers here will go someway to help).

There is absolutely no mis-sale based on what information you have posted.

EdInvestor

welnik wrote: »

20 years ago I was sold an annuity pension from one of their reps. After about 10 years, I decided to increase the contributions.

Have a look at your original policy documentation.Does it allow you to make increased contributions - or perhaps additional irregular single contributions into it?

Certainly some did and if it would have been more beneficial to you to contribute to the RAC, then I see no reason why you can't complain.

Quite a lot of people at Equitable Life experienced this kind of problem - their money got diverted to more modern pensions that had no guarantees,as putting more into the old policy would have cost the insurance company.

Which company are you talking about? It's more likely to have been a problem at one of the houses which had a lot of guaranteed policies.

welnik

dunstonh wrote: »

I'm afraid you are missing out on a lot of information and making wrong conclusions.

You couldn't take 33%. You could take a maximum of 3 times the annual annuity. That could result in a lump sum that was lower or higher depending on annuity rates at the time (or if there were guaranteed annuity rates on the contract). In April 2006, the Govt changed that rule and made all pensions have a standard of 25% unless you applied for protection prior to that cut off date.



No you wouldn't. The exact same investment funds in an ISA are available on a pension. They have the exact same tax treatment whilst invested and you can even pay exactly the same charges. A pension and an ISA are just tax wrappers. They dont make or lose money. Its the investments inside the wrapper that does or doesnt perform.



Before you claim a mis-sale, get your facts right. If you complain against an adviser, even if the complaint is not upheld, it goes on their record. You can hurt someone's career or even just create unnecessary stress for them whilst it gets resolved. You shouldnt go complaining. You need your circumstances reviewed and information updating. You obviously have these questions but rather jumping in with a complaint, why not ask the questions first (hopefully the answers here will go someway to help).

There is absolutely no mis-sale based on what information you have posted.

Thanks for your reply. Not being an expert in Pensions I thought I would post my thoughts/concerns on here to see what other people think. The 33% figure I quoted above was given to me by the insurance company when I took it out in 1986. I was specifically told that I could take 33% in a cash lump sum when I retire and I now know that it was a retirement annuity contract that I entered into.

Also, from what I can gather, when I reach retirement I will have to invest the money into an Annuity and from information from my colleagues, these pay very poor returns compared to other methods of investment i.e. building Society accounts. This is why Im thinking of ceasing my contributions into the pension and investing them in an ISA so at least I can do whatever I like with that money and not have anyone telling me I have to invest it in a certain way.

You have been a great help though ........ thanks

welnik

EdInvestor wrote: »

Have a look at your original policy documentation.Does it allow you to make increased contributions - or perhaps additional irregular single contributions into it?

Certainly some did and if it would have been more beneficial to you to contribute to the RAC, then I see no reason why you can't complain.

Quite a lot of people at Equitable Life experienced this kind of problem - their money got diverted to more modern pensions that had no guarantees,as putting more into the old policy would have cost the insurance company.

Which company are you talking about? It's more likely to have been a problem at one of the houses which had a lot of guaranteed policies.

Its Prudential. I had a moan at them about 7 years ago and Im sure from memory that they confirmed I could have added into the first pension and didnt need the second one setting up. They offered me compensation but I didnt know whether to accept it. I took the papers to a financial advisers and they never got back to me. Probably because I wasnt wanting to buy anything from them. Not sure what to do now.

dunstonh

Thanks for your reply. Not being an expert in Pensions I thought I would post my thoughts/concerns on here to see what other people think. The 33% figure I quoted above was given to me by the insurance company when I took it out in 1986. I was specifically told that I could take 33% in a cash lump sum when I retire and I now know that it was a retirement annuity contract that I entered into.

It probably would have been at the time and if it has guarnateed annuity rates if could stil have had it not been for the Govt changing the rules last year. I have seen many RACs over the years have less than 25% and needing to be transferred into a personal pension increase the lump sum. That is no longer required but this is the risk with long term contracts. Things change.

Also, from what I can gather, when I reach retirement I will have to invest the money into an Annuity and from information from my colleagues, these pay very poor returns compared to other methods of investment i.e. building Society accounts.

If your RAC has Guaranteed annuity rates, these could be valueable and you shouldnt stop the pension if they are good terms - some are in double figures and you can get that on any modern contract.

Also, from an income point of view, the pension still beats all other contracts as far as a guaranteed income is concerned. You may have to buy an annuity with 75% of the money but that annuity rate is typically over 6% at age 65 and your contributions have been increased by 22% (20% from 2008). So whilst it isnt flexible and you will pay tax on that 6% (after personal allowances) the fund will be higher because of the tax relief.

Pensions are not the product they once were but they are not the disaster that is often made out either. There has been a good pension vs ISA thread in the last few weeks that you may like to read as that covers the pros and cons of pensions and isas and when each will be best.

jamesd

welnik, if you post more complete details of your pensions, particularly any guarantees and what the investments in them are, and say what your state pension forecast says about your likely state pensions it'll be possible to say a bit more about whether ISA or pension investing is most likely to leave you better off. Switching the personal pension money to one with a better choice of investments might be good, depending on whether the currrent one has guarantees.

The ISA is handy for flexibility and to avoid going over 20,000 in taxable income and losing age allowance. In other cases things like investment bonds might be a better place to hold the money. All depends on your exact situation. A fair chunk in ISA investments is very good for flexibility, though, so it's nice to have this.

You can use income drawdown of a personal pension until you're 75. Then you have to go with either an annuity or an alternatively secured pension, which is another form of drawdown. Add in getting a 25% tax-free lump sum (that you could invest in ISA funds... ) and they are a pretty decent option. You can also stagger the pension and lump sum taking and that's sometimes useful to get tax benefits or to gradually shift money into ISA funds at 7000 of lump sum a year.

If you're married it's worth looking at the pension situation of your spouse, since you each get a personal tax allowance and it's generally best to try to fairly evenly split the pension income. It may well be best to pay into a pension for your spouse instead of yourself if there's no pension there already.