Annuity transfer confusion 'costs pensioners up to £1,400'
- Virgin Money urges increased pressure on delays
Pension savers are risking losses of at least £1,400 from transfer risks when they turn funds into retirement income despite industry initiatives to speed up annuitisation, Virgin Money warns.
And the losses will be even higher if delays mean savers miss out on the best rates – Virgin Money analysis shows the income on a £100,000 fund has fallen by around 8% in the last six months which is equivalent to around £600 a year.
It is urging all annuity providers to back pension industry initiatives headed by the Association of British Insurers to cut waiting times with an agreed 30-days target.
Recent research* shows the worst offenders are delaying annuitisation by as much as 51 days or 10 working weeks. The research showed Virgin Money was among the better providers.
Virgin Money calculations** show every week's delay at the best rates for a 65-year-old costs them effectively £138 a week in income while for a 65-year-old woman each week costs £129 in income. A 10-week delay costs nearly £1,400 for a man and £1,290 for a woman.
The risk from delays is compounded by the risk of rates dropping – Virgin Money figures show in November 2008 a 65-year-old man with a £100,000 fund could expect £7,776 a year. That income has now dropped to 1£7,171.
A 65-year-old woman in November 2008 would have received an income of £7,320 from a £100,000 fund. That same fund would now produce an income of 1£6,712.
Virgin Money’s Scott Mowbray said: “Buying an annuity is a one-off decision and one which retired people have to literally live with. With a fixed annuity the income you receive is fixed for life so the losses from delays are also fixed for life. There’s no second chance.
"The ABI has done excellent work with its Options programme and has genuinely cut average transfer times. However not all companies are backing its scheme and there are plenty of poor performers.
"The financial services industry should be doing everything possible to make the transfer process as smooth as possible so customers receive the best possible payout. The risk of losing thousands of pounds is a genuine threat."
Virgin Money pledges to send out maturity forms to its pension customers within five working days when they request an annuity transfer form and to send a cheque to the annuity provider within a day once the customer returns the forms.
- Ends -
Notes to Editors
The figures quoted are a guide only and are based on a lump sum investment of £100,000 for a level annuity with income paid monthly in arrears. Current assumed annuity rate is 7.17% and 6.71% for women.
*Annuities Clearing House
**Virgin Money calculations
| Nov 08 | Jul 09 | Drop in income | Drop in monthly income | |
|---|---|---|---|---|
| Male | £7776 | £7171 | 7.78% | £138 |
| Female | £7320 | £6712 | 8.31% | £129 |
1 Source: www.sharingpensions.co.uk/annuity_rates.htm#text1
For further information:
Scott Mowbray, Virgin Money
01603 215594
About Virgin Money
Virgin Money is Virgin’s financial services arm and was established in 1995.
Virgin Money has over two million customers and offers a wide range of financial products across lending (e.g. credit cards and personal loans), savings (e.g. deposits, investments and pensions) and protection (e.g. life insurance, home insurance and car insurance) to the UK market.
Virgin Money Personal Financial Service Ltd is authorised and regulated by the Financial Services Authority (FSA). Registered Office: Discovery House, Whiting Road, Norwich NR4 6EJ. Registered in England no. 3072766. Entered on the Financial Services Register (www.fsa.gov.uk/register), Register Number: 179271