One third give up Royal London Gar

One third give up Royal London Gar

More than 10,000 Royal London customers have accepted a bonus to trade in their guaranteed annuity rates (Gar), the mutual insurer said.

The plan, announced earlier this year, allowed about 30,000 customers, those with Scottish Life pension products, to swap their Gar for a lump sum higher than they would ordinarily have got.

According to the provider, just under 15,000 policyholders replied to a recent mailing on this offer, with more than two thirds (10,546) accepting it, while just under a third (4,207) opted to retain their current guarantees.

Policyholders who accepted the offer and others who have not actively opted out have received an average 60 per cent uplift on their pot over this weekend (December 7 to 9), with the average policyholder receiving an additional £20,000 in exchange for giving up their guaranteed annuity, a spokesman for Royal London said.

The total value of the uplift is around £466m.

Since pension freedoms were introduced in 2015, pension providers have seen a big increase in the number of customers choosing to take their pension savings as cash rather than buying an annuity on the guaranteed rate that was offered when the product was sold, Royal London said.

The provider said roughly three in five policyholders with these guarantees are surrendering them because they prefer to withdraw their capital.

In order to protect these customers, Royal London decided to offer them a more generous exchange package, including a cash uplift.

During the process, the company provided a free guidance line for members as well as access to subsidised financial advice.  

There was also an extensive court clearance process, involvement of regulators and the use of an independent actuary to ensure that policyholders were treated fairly, according to Sir Steve Webb, director of policy at Royal London.

Sir Steve said the offer clearly struck a chord with members with more than two thirds of those who responded actively opting to receive an uplift.

He said: "Compared with a situation where a majority of policyholders are throwing away the value of their guarantees in order to access their pension fund, this is a much more satisfactory outcome, especially since those whose preference is to retain their guarantees have been able to opt to do so."