Victory as 20,000 savers can cash in their annuities: Landmark result for our campaign to extend pension freedoms to existing retirees
- Phoenix Life will allow savers to swap ?lifetime incomes for a one-off lump sum
- Around 20,000 savers with small annuities to be contacted over next six months
- Offer limited to those with small pots who are between the ages of 55 and 85
Tens of thousands of savers will be offered the chance to cash in their annuities under a plan launched today by one of Britain’s biggest insurers.
In a significant victory for Money Mail’s Unlock Our Pensions campaign, Phoenix Life will allow savers to swap their lifetime incomes for a one-off lump sum.
We can reveal that around 20,000 savers with small annuities will be sent letters over the next six months outlining how much they could get.
Breakthrough: In a significant victory for Money Mail’s Unlock Our Pensions campaign, Phoenix Life will allow savers to swap their lifetime incomes for a one-off lump sum
The offer is being limited to those with small pots providing an income of less than ￡300 a year and who are between the ages of 55 and 85.?
In some cases, savers in their 60s and 70s will get as much as ￡2,000 paid straight into their bank accounts.
The new scheme marks a giant step forward for our crusade to extend the retirement freedoms to existing pensioners — and could prompt other companies to let savers cash in their annuities.
Our campaign, launched a year ago this month, explained that five million savers were trapped on shoddy annuity incomes of as little as ￡1 a week.
This unfair situation had arisen because until the pension freedoms in 2015 gave savers unlimited access to their pots, most people had to buy an annuity to get at the cash in a stock market-linked pension plan.
In many cases, the income was making barely any difference to their lives. But while younger savers were allowed to cash in their pensions, older savers with annuities were told their purchases were irreversible.
Initially, the Government said it would launch a secondary annuity market so savers could sell their plans to the highest bidding insurance company.
But it ditched the idea in October 2016 following a secretive 11th-hour meeting with pensions industry executives at a ￡2,600-a-night golfing hotel in Gleneagles, Scotland.
Freedom: Reform in 2015 gave younger savers unlimited access to their pension pots, but people who had already bought annuities were trapped
Ministers claimed they were concerned savers would be ripped off because too few pension providers were going to participate in the new market.
Money Mail called on insurers to end the cruel pensions divide that was left behind. We revealed that the law already allowed savers to cash in small pots — if their insurer agreed.?
We called for the law to be extended to those with larger pots and for savers to get access to financial advice so they could make smart decisions.
Hundreds of readers supported our call for action, filling Money Mail’s postbag with letters eloquently spelling out how unfair the situation was.
Many older savers described how a lump sum would help them pay off their debts, support their grandchildren, carry out much-needed house repairs and pay urgent medical bills.
Some had even taken on debts on the basis that a secondary market would be launched and faced being unable to pay them off.
After a year of repeatedly turning the screw on the pensions industry, regulators, MPs and peers in the House of Lords, Phoenix Life’s announcement represents the first major victory for our campaign.
Crucially, Phoenix says that its payout scheme is completely legal and requires no new laws from the Government. It also says that the City regulator — the Financial Conduct Authority — has been made aware of its plans and has raised no objections.
So there is nothing stopping other companies following suit.
Danny Dowd, head of retirement propositions at Phoenix, says: ‘We are using the same legislation that applies to every other insurer.
‘We’re doing this with a batch of just under 20,000 customers to start with and will then analyse whether it has been successful and judge whether we could extend the offer to more customers.
‘In an ideal world we would offer this to everyone straight away but we don’t want to be swamped and unable to get money to people quickly when they ask.’
Phoenix has chosen to limit the scheme to annuities worth less than ￡2,000 in total, or ￡300 a year, because larger pots create safety issues.
For example, cashing in a ￡10,000 fund could mean a pensioner giving up vital income that currently covers their gas bills, council tax and other essentials.
Mr Dowd says savers with larger pots would need to take independent financial advice, which could be expensive. This would have made the cash-in scheme too complicated, he says.
The payouts will be calculated by working out how much Phoenix has set aside on its balance sheet to pay each customer’s annuity for the rest of their lives.
These numbers are calculated in accordance with strict regulations that already exist, Mr Dowd says.
The payments will take into account anything written into the annuity contract, such as promises to increase the income each year by inflation.
STEVE WEBB ANSWERS YOUR PENSION QUESTIONS
However, the calculations will not account for changes in someone’s health since they took out their policy. If the calculation shows someone is due an extremely small sum, Phoenix will pay out a minimum of ￡100.
The upper age limit has been set at 85 to protect vulnerable elderly people who may find the choice confusing or worrying.
Phoenix has held talks with The Pension Advisory Service, the free guidance body, which will be on hand to talk customers through the implications of cashing in.
In its letters, Phoenix will recommend customers speak to these independent experts before making a decision.
Letters will go out to customers from the end of this week. Around 1,500 will be sent before Christmas with the remaining 17,000 delivered by next April.
Pensioners will have six weeks from the date they receive their letter to respond. Those who do nothing will continue to receive their annuity income as usual.
Phoenix will send reminder letters in a bid to make sure that nobody misses out.
Mr Dowd says the scheme will cut Phoenix’s administration costs, describing it as a ‘win-win’ for customers and the firm.
In May, Money Mail revealed that Phoenix had run a small cash-in scheme for 7,000 people in 2013 — before the pension freedom laws came in. More than six in ten took the lump sum.
At the time, the firm was unsure whether it could repeat the scheme, which was seen as a one-off, due to complications around the pension freedom rules.
‘We’ve done quite a lot of work and analysis to get to this point,’ Mr Dowd says.
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