Complaints to Fos over annuity income gaps raise concerns

Data provided by Fos showed 356 complaints were made about annuities between April and December 2013, compared with 624 during the previous financial year as a whole. The complaint tally for 2012 itself was up 22 per cent on 2011.

The Ombudsman revealed the figures as it listed the most common complaints it receives about products. These often relate to poor administration of schemes and inappropriate advice on handling pension schemes with built-in guaranteed annuity rates.

The Fos stated: “Some consumers are telling us that they are being offered a much lower level of income from their pension plans than they had expected. This is a result of life expectancies improving significantly, consistently low interest rates in recent years and fund values turning out to be significantly less than originally projected.

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One case study revealed one provider – whose name was withheld by the Fos – had left a widow without an income when her late husband unwittingly purchased a single life annuity due to “poor information” at point of purchase. The complaint was upheld.

Another example revealed that a client’s funds had decreased in value while they waited for an annuity to be set up. The delays occurred when administration forms were sent to the wrong address.

Nick McBreen, director of Cornwall-based Worldwide Financial Planning, said: “This situation is a perfect example of the regulatory obsession with costs and charges – the cost of everything and the value of nothing.

“The only way people with small pension pots can get the right strategy on benefit options available to them is to get independent advice.

“I have absolutely no truck with those financial experts and politicians who … seriously believe a pension client can find the right annuity solution at no cost over the internet.”