Pension fund companies practices when you cash in your pension

bigjonmitchell

I have recently retired and in order to do so I needed to contact my pension provider to sort out getting an annuity. Normal stuff you would think but perhaps I was a little surprised when the cash lump sum and amount used for the annuity was not as much as I thought it would be. 

I got a quote for the cash lump sum and the annuity but there was over five weeks delay before the pension pot actually got processed.  The pension funds actually increased in value by a few thousand pounds and indeed on the day my lump sum arrived it did not match the value of the pot based upon the 25% calculations. Throughout the conversations I had with the various people in processing my pension ´claim’ a word that I hate as this isn’t insurance. It’s my money. During this conversation i kept being told that the quote was based upon the current date and that the fund could go down as well as up.  Which obviously means the quote wouldn’t be honored if the fund went down below the  value at the time me of the quotation.  What was not clear was that if the pot increased in value then the pension would not be adjusted upwards in relation to the quote and in actual fact the pension company would pocket the difference. Is this legal?  Seems like they get a free punt on my money with all benefits to them and all risks to me. 

MeteredOut

DB or DC pension?

If DC, did you explicitly as for 25%, or a value that was 25% of the fund value on the date you got the quote?

Have you asked to see the calcs used by the provider?

Marcon

bigjonmitchell said:

I have recently retired and in order to do so I needed to contact my pension provider to sort out getting an annuity. Normal stuff you would think but perhaps I was a little surprised when the cash lump sum and amount used for the annuity was not as much as I thought it would be. 

I got a quote for the cash lump sum and the annuity but there was over five weeks delay before the pension pot actually got processed.  The pension funds actually increased in value by a few thousand pounds and indeed on the day my lump sum arrived it did not match the value of the pot based upon the 25% calculations. Throughout the conversations I had with the various people in processing my pension ´claim’ a word that I hate as this isn’t insurance. It’s my money. During this conversation i kept being told that the quote was based upon the current date and that the fund could go down as well as up.  Which obviously means the quote wouldn’t be honored if the fund went down below the  value at the time me of the quotation.  What was not clear was that if the pot increased in value then the pension would not be adjusted upwards in relation to the quote and in actual fact the pension company would pocket the difference. Is this legal?  Seems like they get a free punt on my money with all benefits to them and all risks to me. 

Not sure if it's too late to suggest this, but it sounds as if you are in the 'one in 8' category who don't shop around for their annuity and could miss out on a better deal: https://www.canadalife.co.uk/news/one-in-eight-prospective-annuity-buyers-unwilling-to-shop-around-despite-potential-income-gains/

bigjonmitchell

It’s not a defined benefit. I asked for the 25%. Not an amoutWhen i queried the situation they said that they back dated the policy to the original date of the quotation. Also looks like i ended up paying a fee of a few pounds for the pleasure.   I have a screenshot of the fund value the day before i received the lump sum. I reckon they have trousered about £3000.  

dunstonh

I got a quote for the cash lump sum and the annuity but there was over five weeks delay before the pension pot actually got processed.  The pension funds actually increased in value by a few thousand pounds and indeed on the day my lump sum arrived it did not match the value of the pot based upon the 25% calculations

Five weeks is slow.  I have been finding it closer to to 5-10 days.
You expect some difference as unit prices change daily.

The tax free cash should match 25% of the transfer value received unless:

a) you selected to take the fee out of the tax free cash
b) you selected a monetary around instead of the the standard 25%
c) There was GMP and the tax free cash was reduced to cover the GMP
d) you had protected tax free cash entitlement that was lost when buying the annuity (e.g. using the transfer method rather than the open market method)

Throughout the conversations I had with the various people in processing my pension ´claim’ a word that I hate as this isn’t insurance. 

An annuity comes under insurance.

During this conversation i kept being told that the quote was based upon the current date and that the fund could go down as well as up.  Which obviously means the quote wouldn’t be honored if the fund went down below the  value at the time me of the quotation. 

The quote is honoured as long as it is transferred within the guarantee period.  The rate is what you get honoured.  Not the monetary amount.    However, most providers honour it for one month.  You say yours took 5 weeks.  So, the guarantee date probably passed.

 What was not clear was that if the pot increased in value then the pension would not be adjusted upwards in relation to the quote and in actual fact the pension company would pocket the difference. Is this legal? 

Every single annuity provider will use the annuity rate against the value of the pot received.    
So, if the fund value goes up, then the same rate will be applied to the higher value and vice versa if it goes down.
However, there is often a tolerance.  i.e. it has to be within 10%.

Seems like they get a free punt on my money with all benefits to them and all risks to me. 

More likely that you have mistaken or misunderstood something as your post doesn't reflect what actually happens.

My punt on what happened (based on your limited information) is that the 5 weeks meant you lost the guaranteed rate, and they gave you their current rate, which was lower than the rate used for the quote.       In the last week, Just, Standard Life and L&G have lowered their annuity rates.    Two of them quite substantially.

QrizB

bigjonmitchell said:

It’s not a defined benefit. I asked for the 25%. Not an amoutWhen i queried the situation they said that they back dated the policy to the original date of the quotation. Also looks like i ended up paying a fee of a few pounds for the pleasure.   I have a screenshot of the fund value the day before i received the lump sum. I reckon they have trousered about £3000.  

In principle, if your TFLS was £3k short then the money available to buy your annuity will have been £3k larger.

This assumes that that's the only discrepancy and that the £3k wasn't their fee/commission for arranging the annuity.

MeteredOut

bigjonmitchell said:

It’s not a defined benefit. I asked for the 25%. Not an amoutWhen i queried the situation they said that they back dated the policy to the original date of the quotation. Also looks like i ended up paying a fee of a few pounds for the pleasure.   I have a screenshot of the fund value the day before i received the lump sum. I reckon they have trousered about £3000.  

What wording was on the documents you signed (or e-signed) when you applied for the 25%, or in the T&Cs?

The wording on a quote I've seen is

"We’ll work out the value of your plan on your actual retirement date or when we have received everything we need, if this is a later date. The values shown above could go down as well as up and are not guaranteed.

We’ve assumed your funds don’t grow or lose value before you take your benefits."

No-matter what amount they use for the 25% given to you, I'd expect the remaining fund value (or in your case, the amount that has gone towards purchasing an annuity) to the to be the fund value on the date of payment, less that 25% (and less any agreed charges, which should have been provided up-front).

bigjonmitchell

Just so you know. It’s Scottish widows.  

dunstonh

bigjonmitchell said:

It’s not a defined benefit. I asked for the 25%. Not an amoutWhen i queried the situation they said that they back dated the policy to the original date of the quotation. Also looks like i ended up paying a fee of a few pounds for the pleasure.   I have a screenshot of the fund value the day before i received the lump sum. I reckon they have trousered about £3000.  

The annuity quote issued prior to applicaton would state the fee (if advised) or commission (if non-advised).   So, you agreed those terms before you signed up

Did you select to have the £3k taken from the 75% element, 25% element or spread across both?

I have a screenshot of the fund value the day before i received the lump sum. I reckon they have trousered about £3000.  

Or perhaps the screenshot hadn't reflected the actual sale price that may have happened days earlier.  i.e. they got the request on the xth May but didn't process it until yth May, but honoured the price used on the xth?

Also, if this used insured funds rather unit trust/OEICs, then the unit pricing on show is often a couple of days behind.

bigjonmitchell

An annuity is nothing to do with insurance. Your don’t pay a premium and the amount you get when you ask for it doesn’t go to zero because you stopped paying the premium.   So the term ´claim’ is inappropriate when referring to your pension that you pay into from your money. Definition of annuity is 

annuity /ə-noo͞′ĭ-tē, ə-nyoo͞′-/

noun

1. The annual payment of an allowance or income. 
2. The right to receive this payment or the obligation to make this payment. 
3. A contract or agreement by which one receives fixed payments on an investment for a lifetime or for a specified number of years.

Note the complete lack of mention of the insurance industry in this 

dunstonh

bigjonmitchell said:

An annuity is nothing to do with insurance. Your don’t pay a premium and the amount you get when you ask for it doesn’t go to zero because you stopped paying the premium.   So the term ´claim’ is inappropriate when referring to your pension that you pay into from your money. Definition of annuity is 

annuity /ə-noo͞′ĭ-tē, ə-nyoo͞′-/

noun

1. The annual payment of an allowance or income. 
2. The right to receive this payment or the obligation to make this payment. 
3. A contract or agreement by which one receives fixed payments on an investment for a lifetime or for a specified number of years.

Note the complete lack of mention of the insurance industry in this 

Wrong.   Annuities are provided by insurance companies.  And to quote one of those insurers:  

An annuity is a type of insurance product that, in exchange for some or all of your pension savings, guarantees to pay you an income for the rest of your life.

And to quote the FCA:



The FSCS also treat annuities under the insurance protection scheme. (100% with no upper limit).

It is also worth noting that plenty of pensions use insured funds or insured contracts that also fall under the FSCS insurance protection scheme rather than the investment protection scheme.

Maybe your time would be better served answering the questions or providing more information to allow us to identify what your mistake is.