AnnuityMar 22 2018

Royal London offers bonus to guaranteed annuity rate holders

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Royal London offers bonus to guaranteed annuity rate holders

Provider Royal London has written to its customers to gauge interest in a bonus scheme for pension transfers out of its guaranteed annuity products.

The provider plans to offer a group of its planholders, who have a guaranteed annuity rate (Gar), the opportunity to exchange the benefit for an immediate and "substantial" increase in fund value.

Any bonus offered would depend on the individual policy and when it was taken out but illustrative uplifts on their capital fund would be 50 to 80 per cent, Steve Webb, former pension minister and now Royal London policy director, said.

He said the idea was to give clients a "fair value" exchange for their guaranteed annuity rate.

The provider said last year, 59 per cent of its planholders who had a guaranteed annuity rate as part of their plan, and who took their retirement benefits, gave up all the guaranteed annuity rate to take advantage of pension freedoms.

Mr Webb said: "It used to be the case that about one in five simply gave up the guaranteed annuity rate because they no longer wanted an annuity and simply wanted their cash.

"But since pension freedoms that has jumped to three in five.

"So a 'majority' of people with guaranteed annuity rates are actually throwing them away.

"As a member-owned business we don't think we can simply sit idly by and do nothing, and indeed we could well be challenged if we let this continue."

Currently the firm is merely gauging interest from members.

If approved, it will have to go through a legal process including sign-off by an independent actuary and get High Court approval.

If given the go-ahead Royal London said it would provide fully funded guidance and heavily subsidising advice to help people make the choice that is right for them.

Alistair Cunningham, financial planning director at Wingate Financial Planning, said the offer seemed "like a minefield" considering the need for advice.

But Paul Stocks, financial services director at Dobson and Hodge, thought it was an interesting proposition if done at reasonable value and meant people could make a decision based on needs and objectives.

He said: "Providers already identify the financial value of the guaranteed annuity rate – I have got a Pru case on my desk where the guaranteed annuity rates effectively almost double the value of the plan – giving policyholders the choice of either taking the guaranteed annuity rate or a capital equivalent would be useful."

carmen.reichman@ft.com