Pensions  

Secret IFA: A troubling inconsistency

Secret IFA: A troubling inconsistency

I often get hot under the collar when reading literature from product providers, but I was apoplectic over some correspondence relating to guaranteed annuity rate options. One particular contract said the following, and I’ll quote it word for word: “If you choose to include a pension payable after your death for your husband, wife or civil partner, our current annuity rate will apply to this part and is not guaranteed”.

Sometime later I was reading a guaranteed annuity rate illustration that said (and again this is word for word) “Level pension payable monthly starting one month after retirement, with same pension amount paid to your husband or wife after your death”.

You might be thinking, so what? If one company decides to provide guaranteed rates to the annuitant and the surviving spouse, and the other doesn’t, it’s a commercial decision. And you’d be right. But this wasn’t two different companies, it was the same provider.

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“So what”, I hear you say, a company has a right to change terms and conditions from one contract to another doesn’t it? And yes, of course it does. But this wasn’t a different contract, a different client, or even a different letter! These were two sentences on the SAME PAGE giving completely contradictory information.

So Friends Life, how do you explain this? If my client predeceases her husband will he receive the same pension as his wife (a guaranteed annuity rate, as the second sentence states) or will his annuity be based on current rates (and not guaranteed as mentioned in the earlier paragraph)? This information is fundamental and frankly given the age of these guaranteed annuity rate contracts, there should have been time to get the correct wording nailed.

This wording appears to have been in use for several years, because although Friends wrote to us in August this year, the page headed up ‘Facts about guaranteed annuity rate options’ is dated April 2011. The guaranteed rates used are clearly specific to the contract because the policy number is quoted. Has the company been confusing policyholders all that time? And in all that time, hasn’t anyone in the organisation read through the ‘facts’ and discovered it is saying two different things?

This doesn’t make my job any easier and it doesn’t help the client either, particularly any who may be taking benefits without seeking advice. I understand clients would ultimately be provided with an illustration based on the specific type of pension they finally decide on, but that decision is initially going to be based on the options initially provided. To later receive something that may be fundamentally different would be inconvenient at best.

This is Friends’ ‘bread and butter’ business, so if it cannot get this right what hope is there. It erodes confidence, and then the firm will wonder why we don’t recommend it anymore.