How to claim for your mis-sold pension compensation

How to claim for your mis-sold pension compensation

Have you been mis-sold a pension or pension annuity? If so, you could be entitled to a substantial sum of compensation.

Claiming against a mis-sold pension is set to be a much bigger issue, with higher rewards available and already being paid, than the current PPI phenomenon that has swept the nation over the past few years.

Mirroring the PPI claims market, many of the people who have been mis-sold a pension annuity still won’t be aware that they can make a claim. It’s vital that anyone who could be in this position should inspect their pension documents, or find a professional agent or specialist who can offer personal advice about their investment.

Are you a victim of a mis-sold pension?

There are a variety of ways you may have been mis-sold your pension—the financial bodies that regulate the codes of practice within the industry have strict guidelines on what is and isn’t fair—the main concerns are where investors have been sold a pension unfairly or haven’t been made aware of alternate and preferable options.

The following areas are the key causes for complaint and a claim:

Health and medical issues

If your pension advisor didn’t ascertain all the correct health and lifestyle information or failed to take it into account, the projection of lifespan would not be viewed as accurate, affecting the expected term of your annuity.

You should have been asked a range of questions about all medical conditions you were suffering at the time you purchased your annuity. You should also have been asked about your lifestyle; including smoking and drinking habits.

Smokers, people who are overweight, or those with medical problems, are expected to have a shorter life expectancy. This can return a much higher income due to the full amount of your pensions savings being delivered over a shorter period of time. This kind of enhanced annuity can deliver amounts up to 30% or 50% more for each year. If the relevant factors weren’t taken into account at the time you bought your pension, you’re fully entitled to make a claim.

Not being supplied enough information

You can draw 25% of your pensions savings as a tax-free sum on retirement if you choose, and use the rest to drip-feed an income until the capital is used up. Alternatively, you can use the whole or part of your pension pot to buy an annuity policy to guarantee you an income until you die; the choices of which are many. There are an abundance of factors to consider in how you expect to carry on with your life after you retire and how the money you’ve saved is going to support that lifestyle.

When it comes to making those choices, if you are not given all the details required to make a properly informed decision, this is accepted as insufficient advice and in breach of the code of practice. A pension fund and its annuity options can be quite complicated. If the buyer opting into a scheme isn’t fully aware of all the risks and the details of the process involved then the pension advisor or company has failed to provide the information the law requires of them. This is a key area of entitlement into claiming against your provider for compensation.

Being given the wrong options

If you were advised to follow an option that wasn’t a befitting option for your personal circumstances, for example, buying into a personal pension savings plan when a company scheme would have been more appropriate, you’re entitled to make a claim.

There are a variety of annuity options dictating how you will be paid when you reach the time to claim your pension: who else may be covered, the costs and charges, inflation protection and elements of risk. If you weren’t explained in full about the best options for you for your personal circumstances then this is also a breach of the financial guidelines and liable for a claim.

One of the key areas of mis-selling is by unscrupulous pensions and financial advisors suggesting investment into unregulated self-invested pension plans. Many of these investments look attractive on the surface, offering much higher return rates and a greater income, but due to the risky and mismanaged nature of many of the businesses being invested in, many fall flat leaving the pensioner completely out of pocket.

You weren’t given an option to seek out alternative options

Your pension advisor must give you the opportunity to find a better deal, rather than be limited to the option they want to sell you. By shopping around for a better deal, you may have found a preferable annuity rate to deliver a much higher income from your pension. If your pension advisor or company failed to make you aware of this, or if they failed to tell you that you could have qualified for an enhanced annuity, then again, they have broken the guidelines and are liable to your claim.

One in eight savers have been mis-sold financial products

The Financial Conduct Authority believes that one in eight savers has been mis-sold a financial product such as a pension by their advisor. They also suggest that there are time limits in place that could affect people’s claims. Given this advice, they believe it’s important to make your claim as soon as possible to achieve the best chances of a successful outcome.

How much mis-sold pension compensation could you claim?

The full amount of compensation will vary from case to case, but claims range into the thousands of pounds.

The current maximum compensation amount is £50,000 but is set to rise in April 2019 to a maximum of £85,000. The money will come from a special £120 million government fund managed by the Financial Service Compensation Scheme.The scheme has been set up to compensate those who have lost out from being sold into poor investment schemes.

However, the Financial Ombudsman is allowed to raise the compensation ceiling and can award a further maximum of £150,000 plus interest in applicable cases.

52% of claims in 2017/18 were successful

The Financial Ombudsman announced that complaints regarding self-investment pension plans rose by 37% in 2017/18 and out of the 2,051 complaints 52% of them were upheld. The figures are rising each year: there were 1,493 in 2016/17 and only 697 in 2013/14. This trend is due to the raised awareness of mismanaged funds by discretionary fund managers luring clients with high returns from investments that are unlikely to perform.

Opting out of Defined Benefit schemes

In 2015, Pension Freedom was introduced that gave people the right to opt out of defined benefit schemes designed to pay them a guaranteed income for life, into a self-invested pension plan (SIPPS).

SIPPS provided greater freedom to the pension saver but was open to new ways of mis-selling. Cold calling methods allowed disreputable advisors to hard-sell high-risk opportunities with the promise of higher returns than typically defined benefit options. However, these risks often failed to pay out leaving the pensioner far worse off than before, and when the pension was unable to pay out, the pensioner was left high and dry.

Pension annuity explained

A pension annuity policy is a type of insurance that you buy with the sum of your pension savings; it guarantees you a regular income for the rest of your life.

The annuity is the rate that determines how much money you will be paid back as income from the policy.

Those with serious health problems should be offered much higher rates than someone with a longer life expectancy, as the insurer will calculate how much longer your pension savings pot will have to pay out for.

It’s the insurer’s job to estimate your life expectancy, how much your savings will pay you for that length of time, and also that they won’t be paying you more than your initial savings amount, leaving them a profit for providing the service.

For those who are yet to buy their pension policy or annuity plan, it’s important to protect yourself against the problems of mis-selling in the first place. You must be sure that the annuity plan you choose is the right one for you.

Types of annuity

You need to choose the appropriate annuity model for your specific situation. This is one of the key areas where pensions are being mis-sold and optimal in making a claim.

  • Level annuity
    This pays out a flat amount of income every year for the rest of your life. The advantage to this is, in the beginning, you will receive the highest rate of income. In later years, however, due to inflation, your money won’t stretch as far.
  • Escalating annuity
    An escalating annuity plan will pay out an increasing amount each year, by a specified amount or in line with inflation. This is a more expensive option, but it will protect your income from the effects of inflation.
  • Single life annuity
    This income will only be paid to you. These plans account for two-thirds of all the plans sold. If you have a partner who depends on your income, this isn’t the best option for you.
  • Joint life annuity
    If you die, your annuity payments are transferred to your partner until they die too. The amount you choose to pay after the first death can be set at varying percentages. Generally, payment options are set at 100% (the same rate as before the first death), 66% or 50%. The percentage chosen will affect the rates over the full estimated term.
  • Guaranteed annuity
    A guaranteed policy will pay out for a specific number of years—even if you die. For example, if you were to take out a guarantee period of 10 years, it will keep making payments for the full 10 years, even if you die before the term is complete. A guarantee doesn’t significantly reduce the level of income.
  • Value-protected annuity
    When you die, your estate or beneficiaries will receive a lump sum payment of the difference between the amount you paid for your annuity plan and the gross income received before you died. If the policy has already paid out more than it cost, then there will be no lump sum.
  • Fixed-term annuity
    A fixed-term annuity behaves as a standard annuity policy would, paying you a set amount each year, but the payments will stop after a specified period, often 5 or 10 years, and will then pay out a single capital sum. This gives the buyer an option to re-address their pension options, choosing a new pension annuity at a preferred rate or an alternate annuity plan to their original option. It means you aren’t locked into a single plan for the rest of your life.
  • Enhanced annuity
    Standard annuity plans are based on a set life expectancy for their owner. This is currently 84-years-old for men and 86-years-old for women. If you have been ill, or are suffering from a specific condition that is determined to affect this estimation, then your insurers will offer a higher-rate of annuity for your income—often up to as much as 50%.

How much annuity can I receive?

Your annuity rate will be given as a percentage that you will base your income calculation from. This will depend on the amount in your pension pot and the type of annuity plan you choose.

With an annuity rate of 5% and a pension pot of £100,000, you will receive an income of £5,000 a year.

The older you are when you claim your pension, the better rate you will receive.

Each provider is entitled to offer their own designated rates. This is why it’s so important to shop around, and if your provider has failed to make you aware of this, it’s an area relevant for a compensation claim. 60% of people stick with their pension savings provider when buying annuity. 8 out of 10 of them lose out by not making a switch.

Don’t get caught out, and if you think you have been, make your claim now

We hope the information provided will aid anybody approaching the time to choose a pension from making any mistakes or poor choices—but more importantly, if those of you who have already bought into a pension plan or annuity believe they’ve done so under poor guidance or through malpractice, make your claim now. There’s a real chance you will be rewarded for standing up for your rights and be paid the money you rightly deserve.

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