The NPC wrote to the Financial Conduct Authority, but we are looking for advice from financial experts. If you are able to advise us on Annuity Transfers, please get in touch via email@example.com
The Letter to the FCA is below
Financial Conduct Authority
12 Endeavour Square
We are writing on behalf of our 1.5 million members and indeed any older person who holds annuities as a way of enhancing income on retirement.
The National Pensioners Convention is the largest campaigning organisation for older people in the UK. Our main objective is to promote the welfare and interests of all pensioners, as a way of securing dignity, respect and financial security in retirement, not just the pensioners of today but for those who will retire in the future.
Our enquiry with you is how we can promote reform of the annuities business, but in particular the rights of annuity holders to be consulted on changes. The most recent case of Prudential and Rothesay Life is one you will be familiar with. In 2019, your Authority fined Prudential for failures in business practices. Unfortunately, it seems it has not helped those who objected to having no say in the transfer of their business.
In 2018 over 360K Prudential annuity holders were surprised to be informed that their annuities would be transferred to a company they had never heard of - Rothesay Life (RL). Many had chosen Prudential for its long-established reputation for reliability. This, with the sales statement that “it is payable for life”. gave a sense of security.
Over 1000 annuity holders registered an objection to the transfer and a group of annuity holders gave evidence at the High Court hearing in June 2019. Despite representations made on behalf of Prudential Assurance Company (PAC) and RL, supported by the 'independent' expert employed by PAC and RL, and agreement from the Prudential Regulation Authority (PRA), the Judge declined to sanction the transfer.
PAC and RL appealed that decision, and won the appeal in (October 2020). It was apparent at the hearing that the annuity holders stood no chance of winning against the combined resources of two insurance companies and the ABI, who supported their case.
Objectors to the transfer have good reasons to contest transfer of their annuity to another provider. Research reveals numerous other transfers to RL in recent months. RL have only been trading for just over 12 years and have changed their trading name and profile several times. Their main backers are based outside the UK. Articles in the mainstream media have suggested that RL’s capital position is less strong than PAC’s, owing to a convention ‘that allows some insurance companies to conjure capital out of thin air’. Many of the Prudential annuity holders would not have chosen RL to be their annuity provider.
While their pension fund is accumulating, the fund holder has the right to move their money to a different company. From the age of 55, the ‘pension freedoms’ allow withdrawal of cash from the fund, 25% of this being tax free. Some purchase a ‘draw down’ product, while others choose to annuitise the fund. Annuity providers’ sales documentation and contracts promise an income ‘for life’; there is no indication that the provider could back out of the agreement and transfer the responsibility to another company. This could be a company in which the policyholder has no confidence, having earlier rejected it, or a new company with no established track record. Annuity holders find that they have no rights to retain their chosen provider, nor to choose a new one: all they can do is attend a court hearing where the odds of exercising their choice are stacked against them.
The NPC is concerned that companies based in the UK with parent operations overseas can, if they so wish, cease trading in the UK and invest all their funds abroad. Currently, there is compensation for annuity holders in the UK who are let down by their provider. We would like to see that compensation being paid in line with that provided by the Pensions Protection Fund. Should a company cease trading in the UK, then we would presume that this protection will not be afforded to any of their investors should something go wrong. If such is the case, then it is unacceptable.
We are asking if you would be willing and able to take an urgent look at instating much better protection for those investors who obviously choose an annuity provider based on track record, trust and sound business principles. Our proposals are:
1. The law should be changed so that each annuity holder has the right to refuse the transfer of their annuity to another company.
2. Meanwhile, when a transfer goes to court, the ‘independent expert’ must be truly independent, not (i) employed by the transferring and transferee firms or (ii) part of the consulting industry whose business model depends on those same firms.
3. Until such changes are made, it is essential that annuity providers are compelled to inform policyholders that once their pension fund is annuitized, the responsibility for payments can be transferred at any time to another company without the policyholder’s agreement.
A copy of this letter has been sent to Lillian Greenwood, MP in her capacity as Chair of the Finance Select Committee.
We look forward to hearing from you. Please contact us via: firstname.lastname@example.org as our staff are currently working from home