Disgraceful annuity delays

EdInvestor

Some people are losing out on pension income because annuity deals are lapsing because of delays in transferring the money.

http://www.thisismoney.co.uk/retirement/article.html?in_article_id=440460&in_page_id=6

It's Government policy to encourage people to "shop around" for better annuity deals, so why don't they enforce it by cracking down on these insurers? :mad:

Anyone subject to this should make a complaint.

jonathon_hart

Speaking as an administrator (Third Party administrator of company pension schemes that use open market options) who used to do these the 2 week deadlines on the quotes is almost impossibly hard to meet. This 2 weeks amounts to only 10 days to actually process it as follows for a money purchase scheme:

Day 1: Request Quote
Day 2: Receive Quote from Insurance company
Day 3: Send Quote to member
Day 4: Member receives quote
Day 5: Member returns quote with all the paperwork I/ the insurance company need to complete the appropriate processes.
Day 6: I get the signed forms and all paperwork from member. Start disinvestment
Day 7: Disinvestment processes. Also complete all forms for insurance company
Day 8: Money sent by Investment manager (using same day transfer)
Day 9: Confirm receipt of money and send this off to the Insurance company along with paperwork (using same day transfer)
Day 10: Phone insurance company to confirm receipt of money - the receipt of money then secures the rate.

As you can see in ideal circumstances it is very tight. I have assumed here there are no delays anywhere in the post or in documents being sent off by any of the parties involved. Thankfully we never had large numbers of retirements at any one time so were able to prioritise these cases.

It also assumes next day disinvestment and money sent the day after disinvestment - this is the absolute fastest in my experience that the investment managers will work and that is only after extensive negotiations and contract signings.

My opinion is that the 2 week valid period on these quotes needs to be extended to give the schemes chance to meet them.

EdInvestor

How many extra days are realistically required do you think?

Also, it seems to me that the problem could be solved if prospective annuitants disinvested before the quote procedure started.

Shouldn't they be doing this anyway?

jonathon_hart

EdInvestor wrote: »

How many extra days are realistically required do you think?

How long is a piece of string... I would say at least an extra week maybe 2 - just to add a bit of slack into the procedure should there be a hold up anywhere.

EdInvestor wrote: »

Also, it seems to me that the problem could be solved if prospective annuitants disinvested before the quote procedure started.

Shouldn't they be doing this anyway?

I would agree that could help solve the problem, however we would do that if the member specifically agreed to us doing that.

The potential problem is that the member has not committed to doing this until they have signed all the forms. So there could be a problem if we disinvested the money first and then the member changed their mind (didn't like the actual rate offered, circumstances changed etc) we would then have to reinvest the money and then who would be liable for any investment gain in that period?

Also if something did happen to delay the purchase (even if the member sat on the forms for 2 weeks or something like that) they could again complain that they have missed out on those 2 weeks of investment return.

Jonathon

EdInvestor

Couldn't there be an "agreement in principle" oin the rate with the actual funds to follow later?

Happens with mortgages all the time.

Milarky

The losses mentioned in the Mail article aren't unquantified - although it is apparent that the two week guaranteed period seems unrealistic in most instances - so a lot of pensioners will be affected. The simplest solution would appear to be to increase the guaranteed period to 4 weeks. These are at least as complex undertakings as (say) transferring an ISA and the industry 'standard' there seems to be 30 days.

dunstonh

It should be noted that it does work both ways. Annuity rates have been on the slight rise in recent years and if the annuity rate goes up and you miss the 14 days you get the new higher rate.

In real life the differences are so insignificant. You typically find monthly payments are different by pence in either direction.

The more important issue would be to standardise the process in some way which is being investigated at the moment. That will also help shave some time off the process.

jonathon_hart

EdInvestor wrote: »

Couldn't there be an "agreement in principle" oin the rate with the actual funds to follow later?

Happens with mortgages all the time.

They do you just only get 2 weeks as oppose to about 3 months as with mortgages...

The requirements from the Insurance companies are broadly similar, but yes a standrd form etc would help.

Again I would agree that quite often the changes are small (or even zero if you only miss by a day or 2), however if you miss by 2 months as in the article then if there have been interest rate changes in the meantime then it could be more. Also the other point would be that the member is potentially without their primary source of income for 2 months which may cause other problems (and possibly charges) due to living expenses or possibly missing debt repayments.