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Sunday, 23 October 2016


More than 100,000 people who bought an annuity since 2001 could get compensation worth thousands of pounds because insurance companies sold them the wrong product and did not do enough to help them buy the right one. If you have an annuity you should read this blog.

A new report from the Financial Conduct Authority has found that some firms did not always ensure their customers got the best annuity deal. If they did not then compensation may be due. That compensation could be thousands of pounds for the past and they will also get a higher income for life in the future.

The people who are definitely affected 
  • Bought an annuity at some time from July 2008
  • Bought it from the same insurance firm where they saved up their personal pension
  • Had a health issue - including smoking - when they bought it
  • Were sold an annuity that did not take account of that health issue

If that is you then you should ask the firm who sold you the annuity for compensation to cover the money you have lost. The FCA estimates it could be worth on average between £120 and £240 for every year the annuity has been paid. It could be a lot more. Over a number of years even the average amount could, with interest, be in the low thousands of pounds and the annuity could be increased by hundreds of pounds each year for the future.

There may be hundreds of thousands of others who can also get redress. See BROADER CASES below.

Who can get redress?
The people affected bought their annuity from the same company they saved their pension with. For example, they saved up in a personal pension with Standard Life and at pension age they bought a Standard Life annuity. I mention Standard Life because it is the only firm so far to admit it has been asked to review its cases. But all annuity providers are in the frame. It does not matter who you bought it from. Other major providers in the past include Prudential, Friends Provident, Legal & General, Norwich Union, Scottish Amicable, Scottish Equitable, and Scottish Widows. But these are just examples to jog your memory. It does not matter who sold you the annuity. If you fulfil the conditions you could get compensation.

What went wrong?
An annuity is a pension for life. You pay the insurance company a lump-sum and it promises to pay you an income every month until you die. A standard annuity assumes you will live an average length of time – at age 65 that is now around 20 years. So your lump-sum has to be spread over that period. But if you have a health issue which will shorten your life the annuity will be paid over fewer years. So you should get more each year. These are called ‘enhanced’ annuities – or sometimes ‘impaired life’ annuities.

The health issues can include smoking, cancer, heart problems, diabetes, or dozens of other conditions which are known to shorten life. The increase in your annuity can be anything from 5% to 100%. Perhaps more in some cases. Smoking for example used to give an increase of up to 17%.

So if you had a health issue but were sold an annuity for a person with no known medical conditions you would have got less money each year than you should have done.

Insurers failed
In the past the insurance companies did not encourage customers to declare all their health issues nor inform them properly that a standard annuity may be too low. They used various techniques to encourage customers to use a pension fund to buy a standard annuity from them.

Research by MGM Advantage found that more than two out of three annuity buyers should have had an enhanced annuity but insurers who sold their own customers an annuity only paid enhanced rates to one in fifty. 

The Financial Conduct Authority found that some firms did not give clear information about enhanced annuities and sometimes understated the extra a customer with health issues might get. Some firms that did not sell enhanced annuities did not even mention them to customers.

So if you bought your annuity from the firm you saved your pension with and had a health issue that was not taken into account you have a clear case for claiming compensation. Remember that being a smoker is a health issue that should have been taken into account.

The official line is that claims can go back to July 2008. But the regulator has confirmed to me that claims can go back further. The previous regulator – the Financial Services Authority – published a report in August 2001 Buying a Pension Annuity and the trade body the Association of British Insurers issued guidance on the subject 8 August 2001. So people could get redress for annuities which were mis-sold back to then. So if you bought your annuity between August 2001 and June 2008 you should also put in a claim.

What to do next
  • Contact the firm where you saved up for your pension or, if you cannot remember it, your current annuity provider.
  • Give the reference numbers of your pension plan (if you still have them) and the annuity you currently get. If you have not got either then give as much information as you can including your full name and date of birth and all the addresses you have lived at since the date you are claiming from.
  • Mention the Financial Conduct Authority Review of Annuity SalesPractices TR16/7 published on 14 October 2016 (and the 2001 FSA report and ABI guidance if you bought the annuity before July 2008)
  • Say you believe you were mis-sold a standard annuity when you should have been sold an enhanced annuity due to your health conditions – list those conditions and remember to include smoking if you were a smoker.
  • Say you were not given clear information about the benefits of looking at the whole market to get the best deal.
  • Say you want your case to be reviewed and compensation paid for your past loss and you want your annuity to be enhanced in the future.
  • If having too little money has caused you distress or damaged your health further – perhaps by not being able to afford adequate heating or food – explain those circumstances and ask for compensation for that as well. 
If your claim is rejected, or partly refused, or you do not get any answer at all after eight weeks you should refer your case to the Financial Ombudsman Service . It is quite likely the insurance firms will be difficult. So don't take no for an answer!

How many cases
The official line is that 90,000 people have been mis-sold an annuity. But that only includes customers of seven companies back to July 2008. Those firms sell two thirds of all annuities. If we add on the other third the number rises to 135,000. And if we take sales back to 2001 then it could be 250,000 who were mis-sold.

Why claim?
The official line is that people with annuities who think they may have a claim need do nothing. The firms involved will review their sales and make contact with individual customers who have a claim. But those reviews only go back to July 2008 and only cover health issues. There is no guarantee that all the customers affected will be contacted. So it is safer to put in your own claim for compensation.

The Financial Conduct Authority concentrated on people who had a medical condition at the time they bought the annuity which would have led to them getting more money each year. But one annuity specialist has said to me that is only part of it. He believes anyone who bought an annuity from the same firm they saved up their pension with should consider making a claim.

That is for two reasons. 
  • If your own pension provider offered you an enhanced annuity it may not have been the best on the market. Different firms and different undertakers offer different rates for different conditions. So a firm that offered the best smokers rate might make a poor offer to a diabetic. So if you did not look around the whole market you probably did not get the best deal. 
  • The annuity offered by your own firm was very unlikely to be the best on the market. Standard annuities vary widely and if you do not look across all providers you cannot be sure you will get the best annuity. Firms were very skillful at leading customers to take their own annuity rather than going to the market. Only a half to two thirds looked at the offerings of other firms. And many of those ended up with their own pension provider.
Guidance on the importance of giving customers what was called the 'open market option' began in August 2001 and was strengthened after that. So anyone who did not get independent advice and look across the whole market could have got a better deal. In many cases that will be the fault of the insurer who did not make that information clear. When it sold you tits own annuity that was probably a mis-sale.

If you think these broader mis-sales may apply to you then follow the advice earlier about putting in a claim. 

Once all these broader options are taken into account the number of mis-sold annuities could be in the millions. Sadly many of those affected, especially those with health issues, could now be dead. It may be possible for their heirs to put in a claim, especially if probate has not been granted or their death was relatively recent.

24 October 2016
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missold annuity

Wednesday, 19 October 2016


Millions of disabled people on state benefits will get benefit rises next April that are less than the price of a first class stamp.

Their benefits will increase by 1% next April in line with the September rate of inflation measured by the Consumer Prices Index. That rise will be the first for two years because in April this year their benefits were frozen after a period when inflation was zero or negative.

But for many the April 2017 rise in their weekly benefits will be barely be enough to buy a second class stamp never mind a first class one.

More than half a million pensioners on the lower rate of attendance allowance will get an increase from £55.10 a week to £55.65. That 55p rise is just enough to buy one second class stamp. By April next year it may not even do that. Even the 880,000 who get the higher rate of £82.30 a week who will get an extra 80p will only be able to buy one 75p second class stamp for a large letter.

If their carer is under pension age they will be among 775,000 who get an increase in carer’s allowance from £62.10 to £62.70. But their rise of 60p will be 4p short of the current price of a 1st class stamp.

Younger disabled people on the lowest rate of Disability Living Allowance, 740,000 of them, will see their weekly payment rise from £21.80 to £22. They will have to save their increase for three weeks to afford one 55p second class stamp.

In some ways these groups are lucky. Millions of other face a second year of their benefit being frozen. Child benefit, Jobseeker’s Allowance, income support, housing benefit, and other working age benefits for people who are not disabled will remain frozen in April 2017. Those benefits were frozen last April and will not rise again for another three years until April 2020. And many on benefits will see a fall in their income as the latest round of cuts is applied.

The one group who will be able to afford to send parcels rather than letters are state pensioners. The will get a 2.5% rise under the triple lock which guarantees a rise by the highest of prices, earnings and 2.5%. The rise in prices was 1% (CPI) and in earnings was 2.4% (KAC3 revised). The 2.5% increase will mean the basic state pension rises by £3 a week from £119.30 to £122.30 and the new state pension will increase by £3.90 a week from £155.65 to £159.55.

Those on the means-tested pension credit will get a rise of 2.4% (£3.75 single, £5.70 couple) and those who get on the savings credit part of it will get lower increases.

More details of the April 2017 benefit changes which have now been announced

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29 November 2016


Inflation hit 1% in September (CPI) and the revised rise in earnings May to July (KAC3) was 2.4%. So unless the new Government changes the rules or modifies the policy benefits and pensions will be uprated by four different rates from Monday 10 April 2017. The rates will be 0%, 1% and 2.5% with a fourth rate for pension credit, probably 2.4% for the guarantee credit but less for the savings credit. All amounts are rounded so may be slightly more or less than the stated rate of increase.

These figures are my estimates on the current rules. The Government could change the rules. The actual amounts will be announced around the time of the Autumn Statement which is on 23 November.

Some benefits will be frozen. The Summer Budget 2015 listed the working age benefits that would be frozen for four years from 2016/17 to 2019/20. They are
  • Child Benefit
  • Jobseekers’ Allowance
  • Employment and Support Allowance
  • Income Support
  • Housing Benefit under women’s state pension age
  • Local Housing Allowance rates
  • Child Tax Credit
  • Working Tax Credit
  • Universal Credit
Any disability premiums or extras paid with any of these benefits will NOT be frozen. They will rise by 1%.

It is likely that in England council tax support, paid by local authorities, will also be frozen for people under women’s state pension age. In Scotland and Wales that may not be true.

Women’s state pension age at April 2017 will be 63 years and 9 months.

Rise by 1%
Benefits which are not frozen will rise by the rate of CPI inflation for September 2016 which was 1%.

They include
  • Attendance Allowance - up by 80p a week for higher rate and 55p a week for lower rate
  • Personal Independence Payment - up by 80p a week for higher rate and 55p for lower rate
  • Disability Living Allowance - up by 80p, 55p, or 20p a week for lowest rate
  • Carer’s Allowance - up by 60p a week
  • Bereavement Allowance - up by £1.15 a week
  • Maternity Allowance - up by £1.40 a week
  • Statutory Maternity/Paternity etc Pay - up by £1.40 a week
  • Statutory Sick Pay - up by 88p a week
  • All parts of the state pension which are NOT Basic State Pension or New State Pension. Details below.

Employment and Support Allowance falls partly under frozen benefits and partly under benefits that will be raised by 1%. The basic ESA of £73.10 a week is frozen. The extra paid to those who cannot work - the support component - will rise by 35p a week, an increase of 0.3%.

Rise of 2.5%
The basic state pension and the new state pension will rise by 2.5%. They are covered by the so-called triple lock which guarantees an increase in line with prices measured by the Consumer Prices Index, earnings, or 2.5% whichever is the highest. CPI was 1%, earnings rose by 2.4%, so they will increase by 2.5%.

That will mean
  • a rise in the basic pension of £3.00 from £119.30 to £122.30
  • a rise in the full new State Pension of £3.90 to £159.55.
Any extras paid with the basic pension – SERPS, State Second Pension (both known as additional pension), graduated retirement benefit, and extra pension for deferring a claim will rise by 1% in line with the CPI.

Any amount of the new State Pension which was above £155.65 in 2016/17 will also rise by only 1%.

It is worth noting that the Triple Lock only adds 15p a week to the state pension rise. The law currently provides for them to rise by the increase in earnings, That was 2.4% and would have resulted, after rounding, in a basic state pension of £122.15 and a new state pension of £159.40.

Rise by a different amount
Pension Credit is an anomaly in the benefit system. There are two parts to it.
  • Guarantee credit paid to men and women who are aged from women’s state pension age to 65.
  • Savings credit paid to men and women aged 65 or more who reached state pension age before 6 April 2016. Savings credit is NOT paid to anyone who reached state pension age from that date. in 2016/17 or later.
Based on past years,
  • The guarantee credit must rise by at least the rise in earnings and that was 2.4% (KAC3 May-July revised) which would add £3.75 a week to the single rate and £5.70 to the couple rate. It is conceivable but less likely that it could increase by the £3.90 a week rise in the new State Pension which would be a 2,5% increase.
  • The savings credit will almost certainly rise by a smaller percentage in order to claw back some of the increase in the guarantee credit.
We will not know the rates of Pension Credit until late November.

Compared with April 2016
In April 2016 all benefits except the state pension were frozen. Some by the decision announced in the Summer 2015 Budget and others because CPI inflation in September 2015 was -0.1% which led to a zero rise. So for those benefits that will increase in April 2017 it will be their first rise for two years.

The basic state pension rose by 2.9% in line with earnings. That £3.35 increase was more than the £3.00 expected in April 2017. The extras paid with the basic state pension were frozen.

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1 November 2016

Tuesday, 11 October 2016


More than a million people who reach state pension age in the years from 6 April 2016 will not get the full £155.65 amount of the new ‘flat-rate’ state pension.

But many of them could boost their pension towards or up to the full flat rate amount.

This guide is for men born 6 April 1952 or later and women born 6 July 1953 or later who paid into a good pension at work or, in some cases, into a personal pension.

There are other groups who can boost their state pension. Separate links for them are listed at the end of this guide.

The new state pension was supposed to be simple. A flat-rate amount for everyone who had at least 35 years of National Insurance contributions. This year that amount is £155.65 a week (£8039 a year) and is taxable. However, there are around one and a half million people who will reach pension age in the next ten years who will get less than that even if they have 35 years or more National Insurance contributions.

That is because an amount is deducted from the pension for every year they paid into a good pension at work. I call it a contracted out deduction because they were ‘contracted out’ of part of the state pension called SERPS or State Second Pension (S2P). They paid lower National Insurance contributions and instead of that additional state pension they get a pension from their job which was supposed to replace it. The Government prefers to call it 'Contracted Out Pension Equivalent' or COPE. It is that COPE amount that is deducted from your new state pension.

This group includes most people who worked in the public sector, such as

·         nurses, doctors, and others in the NHS
·         teachers in schools and universities
·         police officers and fire brigade staff
·         civil servants
·         local government workers
·         armed forces

It also includes many people who worked for one of the privatised industries such as British Airways, British Rail, British Steel, Royal Mail, Post Office, and others.

It also includes anyone working for a private sector employer who paid into a good scheme at work that promised them a pension related to their salary. They used to be called ‘final salary’ schemes and nowadays are called Defined Benefit or DB schemes. In the past many large firms ran such schemes. There are still nearly 6000 of them and if you paid into one at any time from 1978 your new state pension will be reduced.

Also included are some people who paid into a personal pension and who were persuaded to contract out of part of the state scheme – at the time it was normally called ‘contracting out of SERPS’.

For all these people their new state pension will be reduced for the years they paid into a contracted out pension scheme. That deduction applies even if they have paid the 35 years which is needed to get a full pension – the deduction is made after the full pension is worked out. It can also apply even if they were contracted out for a short period and paid in 35 years or more when they were not contracted out. These deductions can be very large but normally can never leave you with less than £119.30 a week basic pension.

Please do not ask me why that is fair! It may not be fair but it is the law. The good news is that you can reduce that deduction and, depending on your age, you may be able to get your pension up to the full flat-rate £155.65.

If your new state pension has an amount deducted from it because you spent some time paying into a good pension scheme at work then you can reduce that deduction or even wipe it out. This guide is of most use to people who are currently aged at least 56. It will help even if you already have 35 years National Insurance contributions or more.

If your new state pension is reduced because you paid into a good pension scheme at work then every year of National Insurance contributions from 2016/17 to the year before you reach state pension age will make that deduction less.

If you work and earn more than £112 a week you will get contributions credited or paid to your account (you start actually paying for them when you earn above £156 a week; under that they are credited). If you get child benefit for a child who is less than 12 then you will also get a credit for each week. If you get jobseeker’s allowance, employment and support allowance, or working tax credit then you will get a credit for each week you get that benefit. You can also get credits if you are a carer in some circumstances. Check here for more details of who can get credits. Some are given automatically, others have to be claimed.

Men can get credits for years between women’s state pension age and 65. They get a credit for the tax year in which they reach women's state pension age (unless they also reach 65 in that tax year) and any subsequent tax year before the tax year they reach 65. So these man credits are only available to men born before 6 October 1953. See footnote.

If you are self-employed then you must pay what are called Class 2 National Insurance contributions if your profits are £5965 or more. They are called Class 2 and are £2.80 a week (£145.60 a year). Self-employed people can also pay these contributions voluntarily even if their profits are below £5965 - but only for years in which the were genuinely self-employed.

If you will not pay National Insurance contributions at work or as self-employed or get credits for them you can pay voluntary contributions, called ‘Class 3’. They will cost you £14.10 a week (£733.20 for a year). For each extra year of contributions your pension will be boosted by £4.45 a week (£231.25 a year) so the payback is rapid – just over three years for non-taxpayers; almost four if you pay basic rate tax; just over five for higher rate taxpayers, and almost six for top rate 45% taxpayers.

The new state pension up to £155.65 a week comes under the ‘triple lock’ promise and will rise each April by prices, earnings, or 2.5% whichever is the highest, at least until April 2020.

If you have paid some contributions at work or as self-employed during the tax year but you are short of a full year you can pay individual weeks through Class 3 (or Class 2) to make your record up to a full year.

You can only pay Class 3 contributions for the years before the tax year in which you reach state pension age. That limits the number of years you can pay to boost your pension. The table show which years you can pay Class 3 contributions for to set against the contracted out deduction and the maximum boost that may give to your pension. Your pension cannot be boosted to more than £155.65. So if it is more than £119.30 then the maximum boost is less than £36.35.

Reach State Pension Age in
Men born
Women born
Years you can pay
Maximum pension boost (2016/17 rates)
6 April 1951
5 April 1952
6 April 1953
5 July 1953
6 April 1952
5 April 1953
6 July 1953
5 Oct 1953
6 April 1953
5 Jan 1954
6 Oct 1953
5 Jan 1954

Men and women born

6 January 1954
5 July 1954
6 July 1954
5 April 1955
6 April 1955
5 April 1956
6 April 1956
5 April 1957
6 April 1957
5 April 1958
6 April 1958
5 April 1959
6 April 1959
5 April 1960
     £36.35      (max)

There is no hurry to do anything. You can pay voluntary Class 3 contributions in the tax year they are due or up to six years after that. You cannot pay them in advance. The price may rise as time passes so it will be cheaper to pay them as soon as you can.

If you will reach state pension age in 2017/18 you may want to act soon to see if you can boost your pension by paying National Insurance contributions for 2016/17. Otherwise it is probably best to wait.

You can phone the DWP’s Future Pension Centre on 0345 3000 168 and ask for help. Ask them what your ‘starting amount’ is and ask if there is a deduction for being contracted out. If your starting amount is less than £155.65 and there is a contracted out deduction then you may be able to boost it using the information in this guide. 'Starting amount' is explained in the notes below. If you have a deduction for a pension which you cannot trace use the Government's free Pension Tracing Service.

Many people have contacted the DWP and been told they cannot boost their pension because they have 35 years of contributions. That is incorrect. Some officials seem to be confusing this scheme with one to fill gaps in your contribution record. There is a separate guide about that – see Filling Gaps below.

You may get more sense from the free and excellent Pensions AdvisoryService or call on 0300 123 1047. Beware of similar sounding commercial organisations.

You can check your starting amount at this Government website. You will have to go through security procedures which can be a pain. Make sure it includes your 2015/16 contributions. In future this website may let you see how you can boost your pension by paying extra National Insurance contributions. It will be a lot easier to check these things when the website is fully operational, probably in a year or so.

1. All the rates in this guide are correct in 2016/17. The new state pension will rise from April 2017, probably to £159.55 a week. Class 3 contributions will also rise, probably by about £7 a year.

2. If your income is low then you may get extra money from pension credit or help with your council tax or rent (rent or rates in Northern Ireland). If you buy Class 3 contributions to boost your pension those benefits will be reduced but it will almost always still be worthwhile.

3. Your ‘starting amount’ is the calculation of how much state pension you have built up at 6 April 2016 under the old and the new rules. Your starting amount is the one that is bigger. It will take account of National Insurance contributions paid up to 2015/16 and will also make a deduction for years you have been ‘contracted out’ of part of the state pension system called SERPS. If it shows you have fewer than 35 years of National Insurance contributions then you may be able to pay more to boost that number towards 35. See ‘other groups’ guides link below.

4. SERPS, the State Earnings Related Pension Scheme, was an earnings-related supplement to the basic state pension. People paid into it as part of their National Insurance contributions from April 1978 to April 2016. From April 2002 it was changed and renamed State Second Pension (S2P). It was SERPS and S2P – sometimes called ‘additional pension’ – which people ‘contracted out’ of if they paid into a good pension at work or in some cases into a personal pension which they chose to ‘contract out’. They paid lower National Insurance contributions. The pension they paid into was supposed to replace the SERPS or S2P but it does not always do so in full.

5. Tax years run from 6 April one year to 5 April the next. So 2017/18 runs from 6 April 2017 to 5 April 2018.

6. If you have an old pension you cannot trace, use the Government's free Pension Tracing Service.

7. Contacted Out Pension Equivalent is the amount deducted from your new state pension to take account of the time you were contracted out of SERPS/S2P. In theory the amount deducted should be paid to you by the pension scheme you paid into as part of being contracted out. But that will not always happen especially if you were contracted out into a personal pension. This government guide to contracting out sort of explains it.

8. Man credits. These man credits - called auto-credits - are only awarded for whole tax years, not individual weeks. Men born 6 April 1952 to 5 April 1953 can get a year of contributions credited for 2016/17. They may also get earlier years credit but they do not help with reducing their contracted out deduction. Men born 6 April 1953 to 5 October 1953 can get a year credited for 2017/18.

The credit is given for the tax year in which they reach women's state pension age (unless they also reach 65 in that tax year) and for any subsequent tax year before the tax year they reach 65.

Men born 6 April 1951 or later and women born 6 April 1953 or later.
·         Filling gaps in your National Insurance record – new state pension 

Men born before 6 April 1951 and women born before 6 April 1953
·         Filling gaps in your National Insurance record – old state pension 
·         Buy up to £25 a week extra old state pension – scheme ends on 5 April 2017

There is also a comprehensive guide to what you can do to top up your state pension available as a download from the mutual insurance company Royal London written by former Pensions Minister Steve Webb it is well worth a couple of hours study.

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4 November 2016