Royal London Pensions 

Royal London goes ahead with annuity swap offer

Royal London goes ahead with annuity swap offer

Royal London is taking the next step in seeking permission to offer clients a bonus to trade in their guaranteed annuity rates (Gar), but other providers have yet to follow suit.

The firm has arranged a court hearing to consider the option for 25 June.  

If successful, it will allow about 30,000 customers, those with Scottish Life pension products, to swap their Gars for a lump sum higher than they would ordinarily have got.

Royal London said it wants to offer its clients an “actuarially fair exchange" and thereby protect them from "throwing away" annuity guarantees.

The uplift offered will depend on when the policy was taken out and factors such as the client’s age but it could be up to 80 per cent, the firm said.

It had written to its clients last month to gauge interest in the idea. It said responses had been “overwhelmingly positive”, with about five in six wanting it to proceed.

Steve Webb, director of policy at Royal London, said: “Having a guaranteed annuity rate attached to a policy is a very valuable benefit, and that is why we have become increasingly concerned that growing numbers of policyholders are throwing away that guarantee so that they can access their pension pot instead of buying an annuity.  

“We are therefore testing the appetite of policy holders to see if they would like to be given the option of an uplift in the value of their pension pot as an alternative to their guaranteed annuity rate.

“We are already seeing that significant numbers of policyholders are interested in this option.  

“We will continue to work closely with regulators and others throughout this whole process to ensure that members are given a fair deal.”

Royal London said about one in five of its Gar policy holders had chosen to give up their guarantees to take the cash in the past but this figure had risen to three in five after the pension freedoms were introduced.

Under the plans individuals would be free to opt to retain the guarantee and existing terms if they wished.

Royal London will fund free guidance for those affected and also subsidise personalised financial advice for those who wish to take it up before making a decision. 

The terms of the offer have been overseen by an independent actuary who has to confirm that savers are being offered fair value for their guarantees.

Stephen Lowe, communications director at Just, which does not provider retirement savings accounts, said Royal London was doing the right thing and other providers may consider following suit.

He said: “50 to 60 per cent of consumers [are estimated to be] giving up this valuable promise and are running away with their pension pot.

“It’s absolutely the right thing to make sure customers are aware of that fair value, but the question is how do we judge that value.”

Plans to launch a secondary annuity market, which would have allowed annuities to be traded, were dropped in late 2016 over concerns the government could not guarantee consumers will get good value for money. 

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