Millions face new pension scandal
Your support helps us to tell the story
From reproductive rights to climate change to Big Tech, The Independent is on the ground when the story is developing. Whether it's investigating the financials of Elon Musk's pro-Trump PAC or producing our latest documentary, 'The A Word', which shines a light on the American women fighting for reproductive rights, we know how important it is to parse out the facts from the messaging.
At such a critical moment in US history, we need reporters on the ground. Your donation allows us to keep sending journalists to speak to both sides of the story.
The Independent is trusted by Americans across the entire political spectrum. And unlike many other quality news outlets, we choose not to lock Americans out of our reporting and analysis with paywalls. We believe quality journalism should be available to everyone, paid for by those who can afford it.
Your support makes all the difference.Almost 2.5 million people risk becoming victims of a new pensions mis- selling scandal because of a "badly drafted" section of the new Pensions Act.
Those most at risk have opted out of their state earnings-related pension scheme (Serps) and have a rebate paid annually by the Government into a personal pension plan instead. No other contributions are made to the scheme.
A clause in the Pensions Act, introduced last year, forces insurance companies to offer a special type of option, called income withdrawal or deferred annuity purchase, to all those with a "rebate-only" pension who are about to retire. In return for giving up an immediate right to a guaranteed, but lower, annual income they can draw down larger payments until the age of 75.
If the larger payments are drawn down until that age and investment performance is poor, pensioners would only be left a small pot of capital to buy an annuity to top-up the basic state pension.
Insurance companies believe that unscrupulous salespeople could mis-sell such schemes to people who want higher payments immediately when they retire, without advising them of the dangers.
The Association of British Insurers, the industry's trade body, is so concerned that it is lobbying the Government in the hope of winning a change in the law.
One insurance executive, who would not be named, said: "What worries me is that while most of us will be scrupulous, it only takes a few to create mayhem. Even 1 per cent of mis-sold policies could lead to tens of thousands of cases over the years. Unless we act now, we could be talking several times that number."
The new-style deferred annuity pension was given the go-ahead by the Government in November 1994.
Instead of buying an annuity - a guaranteed annual income - pensioners use a slice of their total pension fund to live on. The rest of their fund continues to be invested and is expected to grow faster than the cash draw-down.
If investment performance is poor, however, the value of the fund could shrink at the time when people need it most.
Join our commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies
Comments