Pensions expert Ros Altmann may have re-opened a can of worms today (23 October) by telling pensions minister Steve Webb that it is “not impossible” for companies to unwind annuities, although she said she understands that it would be difficult.
Earlier this month, Mr Webb signalled a desire to unwind legacy annuities agreed prior to the Budget at this year’s annual National Association of Pensions Funds.
Mr Webb said he did not expect the government will change anything for people who have been locked into an annuity prior to April 2015, but that he was concerned about savers who had signed up to life-long contracts prior to the new rule freedoms being announced.
Giving evidence to the Pension Scheme Bills Committee, Ms Altmann was asked by Mr Webb whether there was consumer appetite for annuities to be unwound.
Ms Altmann said she has had a “significant number of emails and calls from people locked into annuities from the last year or two before the changes impacted, who want to undo” the deal.
She mentioned that this was particularly related to savers who had conventional annuities and were ill or would have qualified for an enhancement, who have realised their annuities are “not good for them”.
Ms Altmann said: “If there were a way in which annuities could be undone, it would be very popular.”
She added that some people suggested to her that they would not mind having to pay a penalty as long as they “got the balance of their fund back”.
Ms Altmann noted: “I understand too that it’s difficult for companies to sell a product under contract that’s irreversible to consider how to unwind the deal, but I would imagine it would not be impossible for providers to unwind the deal if the will is there.
“Certainly for people who have been sold an unsuitable annuity the case is strong for the sale to be unwound.”
Speaking to FTAdviser following the evidence session, Ms Altmann, admitted that “the further back you go the harder it is to do”.
She said: “However the theory would be to repay customers any money they have not yet received from their original pension fund - possibly less a penalty for breaking the contract or perhaps just without factoring investment returns earned.
“The problem with this is that those most likely to cash-in may be those in poorer health leaving the insurer exposed to more risks than they planned for. Of course this could be factored into the penalty applied.
“Another approach could be for anyone who considers they were mis-sold an annuity, perhaps as they are in poor health but were never asked, or they wanted partner cover but were not told what single life meant, to challenge their insurer and ask for a refund.
“This would need some FCA or Ombudsman support and could, in my view, be justified under TCF rules.”
donia.o’loughlin@ft.com
