Guaranteed Annuity Rate Not Applied 2009 - Compensation

Junespoon

My Father-in-law retired in 2009 at 65.  The policy was with Scottish Life and was transferred to Canada Life. 
At this time the GAR was never applied and he was never made aware of it. 
Therefore the policy was worth alot more and he would have been entitled to higher payments.

Royal London (Scottish Life) have offered compensation and have applied a GAR of 100.18%.

Would anybody know if this is a fair rate?

He has complained through their dispute procedure but as we can not find any actual proof the rate is unfair they will not increase 
the offer.

Is it worth going to the Ombusman?

Thanking you in advance.

Junespoon

Correction Ombudsman!

greatkingrat

I think you have to assume they have calculated it correctly. If they were trying to diddle you, they could of just not contacted you at all, as your father in law was unaware of the existence of the GAR.

Probably someone else complained that they were being paid the wrong rate and they have realised there was a bug in their systems and are going through the policyholders affected to correct things.

Linton

There is no point in going through the ombudsman until your father has exhausted the process through the pension company.  Since he has no evidence that the compensation is unfair I cant see him getting very far.  If your father  wanted someone qualified to check and explain the calculations I suggest he engages an IFA.  Perhaps the pension company would pay the costs for him to do that.

dunstonh

Would anybody know if this is a fair rate?

The rate will depend on the GAR at the time.

He has complained through their dispute procedure but as we can not find any actual proof the rate is unfair they will not increase the offer.

The calculation will be defined. Its not a haggle.   This process is part of a wider review and the methodology would have been agreed with the FCA.

Is it worth going to the Ombusman?

The FOS won't calculate it for you.  Either you have to work out or you pay for an actuary to work it out, at your own expense.

Junespoon

Thanks for your replies, much appreciated, comments taken on board.

Agree they will have calculated correctly, I suppose we have a doubt as they can't provide any evidence of where 100.18% rate came from or even a calculation.  I found rates from 2012 and 2014 which were a lot higher eg 109 & 110%.

Malthusian

Junespoon said:

Agree they will have calculated correctly, I suppose we have a doubt as they can't provide any evidence of where 100.18% rate came from or even a calculation.  I found rates from 2012 and 2014 which were a lot higher eg 109 & 110%.

If they're actually going to pay him 100.18% of the retirement fund value every year I would bite their hand off. Was it a rate of 10.018%pa, or 100.18 per £1,000? (Not just being pedantic, it makes things easier if we know which numbers are which. For some reason insurers often talk about GARs in terms of annuity per £1,000, instead of per cent like normal people.)

GARs varied by policy and by insurer, so the fact that somebody somewhere had a rate of 10.9% (?) doesn't mean he did.

If this is the guaranteed annuity rate we're talking about, the rates would have been determined when the plan was set up and should be in the original policy documents. So asking Canada Life for the original policy documents might give peace of mind. However, they might well say "The original policy document has not been stored, we just have a table of what the GARs are". In which case the onus would fall on you to produce the original policy document showing Canada Life's GAR table is wrong (which is very unlikely).

The compensation calculation is more complicated, but the standard is for simple interest of 8%pa to be paid on the underpayment. That is not always as generous as it sounds because it's simple interest, not compound. But when the missing money dates from 2009 at the earliest (with the average length of time unpaid being 6.5 years), the beginning of the zero interest rate era, it is very favourable.

Terron

The GAR I had for 10.6%. If he is getting over 100%  it looks more than fair.

Junespoon

They have quoted "equivalent to an annuity rate of 100.18% per £1000.00 of benefit"  Is this still a biting their hand off offer?  I'm sure you can tell I'm finding it all a bit confusing.

The interest rate calculated is the BoE base rate + 1% for the period 2009 - 2021.  Not on future payments.

dunstonh

They have quoted "equivalent to an annuity rate of 100.18% per £1000.00 of benefit"  Is this still a biting their hand off offer?  I'm sure you can tell I'm finding it all a bit confusing.

So, an annuity rate of 10.018%   

If it was an old Scottish Life Talisman and age of commencement was around 65, then high single digits to low double digits was the normal figure depending on the options selected.  

The interest rate calculated is the BoE base rate + 1% for the period 2009 - 2021.  Not on future payments.

What it appears they are doing is backdating the GAR to 2009 and paying the difference plus base+1 and correcting it going forward (hence no need for further redress on that bit).

That is in line with expectations.

sandsy

They have an obligation to explain the calculation. 

Did your dad buy an annuity with Canada Life? If so, I'd say they should pay a cash lump sum which reflects the difference between what your dad should have received and what he is receiving, rolled up to days value. And also an amount which reflects the present cost of the future difference between what he could have had and will get.