Daily Mail

Why the £9,000 David saved into a pension over 11 years turned out to be worth NOTHING

- By Iona Bain

DAVID BORTHWICK is no stranger to hard work. The 57 year old gets up in the dark to open his family newsagents in Edinburgh at 3am every day.

So he was over the moon in April 2015 when the Government said over-55s could cash in their entire pensions.

David, who began working in the shop aged 17, had saved £8,740 into a Friends Life pension in the Nineties and early 2000s.

The new rules meant he could use the money to finish the home improvemen­ts he’d been working on — and even bring forward his retirement by a few years.

But when David asked for the money, he found the insurer had tied him into an extraordin­ary Catch-22 situation.

It turned out that years of high charges had eaten away most of his savings.

His £ 8,740 pot was worth around £2,268 and getting smaller by the day. Friends Life was deducting an astonish-ing £400 a year for management and ‘service’ fees.

The charges were so high that the insurer admitted his pot would be worth nothing by his 65th birthday.

When David saw a ‘£ 0.00’ future pension estimate in the documents the company sent him, he tried to withdraw everything.

But under a clause in the contract, Friends Life barred David from cashing in his pension for another seven years.

He was locked into the shoddy deal until his ‘retirement date’ — June 2024 — which was determined when he signed up in 1992.

In a final blow, David couldn’t even switch to a cheaper plan that would leave some money left.

In theory, moving to a low- cost plan with a firm such as Hargreaves Lansdown or AJ Bell would have cut his fees to £10 a year.

But Friends Life told him the entire fund would be ‘ reduced to zero’ if he switched.

So David’s pension was worthless to him — yet provided a tidy £400 a year income to his insurer, which is owned by Aviva.

He says: ‘I was horrified to see how little my savings were worth. For all those years, they never told me they were gradually taking all the money I had paid in and I could never get anything back — it’s daylight robbery.’

Millions of savers were sold pension plans in the Nineties with clauses that said they couldn’t access the cash until retirement.

The high- charging plans were flogged by doorstep salesmen, who pocketed giant commission­s.

Often the contract also included a so- called exit penalty if the saver tried to switch to another company before they retired.

David was sold his plan by local financial adviser Dundee & Edinburgh Insurance Services. He paid in £8,740 between 1992 and 2003 — but only realised the value was shrinking in November 2015, when he received a statement from Friends Life.

Examining the charges, he saw deductions of £4.40 for a ‘monthly service fee’ and £28.68 because he had stopped paying in.

This fee was being applied because a clause in the contract says David has to pay in £5,000 annually for 32 years or face ‘additional charges’.

Being a small business owner, David says his income was never going to be predictabl­e. He says he was never aware of the onerous clause, either.

Friends Life was also levying a 1.25 pc ‘ annual management charge’. That meant in total the deductions came to £425.11 a year.

The exit penalty, that appears to have been calculated using a complex formula, was so large that it would have wiped out the fund if he moved it to another firm. By December 2016, the fund had fallen another £ 341 and was worth around £1,900 — even though the stock market had risen 14 pc in the intervenin­g months.

David complained to Friends Life about the fees, but was told his complaint was about mis- selling and should be directed to the financial adviser who sold him the plan. Dundee & Edinburgh Insurance Services is no longer trading, so Friends Life suggested he go to the Financial Services Compensati­on Scheme for redress, or the ombudsman, which rules in disputes between companies and customers.

When Money Mail intervened, Friends Life sprang into action. Its owner, Aviva, now accepts the pension’s terms and conditions may not have been properly explained to David by his financial adviser.

It has recalculat­ed the charges without the penalties and given him a new fund value of £16,249.

David must still pay an exit penalty of around 2.4 pc, which will leave £15,851 if he wants to move to another provider.

He plans to do this and take out some of his tax-free cash to put towards a glass balcony he is building for his home.

Baroness Ros Altmann, the former pensions minister, says: ‘These type of policies should be outlawed completely.

‘They’re an outrage and I hope the Government will clamp down on insurers.’

On April 1, the Government will introduce a 1 pc cap on charges when over- 55s exit their old workplace pensions.

Aviva says it has now made changes to the policy, and David’s exit fee will be even less if he waits until April to withdraw his cash.

But Aviva would not say whether the cap would have applied if David’s policy terms had remained unaltered.

A spokesman for Friends Life says: ‘The customer was required to commit to a specific level of saving per year as part of the policy contract, with additional charges incurred should customer premiums reduce or cease.

‘Having reviewed this customer’s specific situation, we have identified that his retirement plan was not set up in the most relevant way for his circumstan­ces.

‘ We will therefore amend his retirement plan to ensure he is not financiall­y disadvanta­ged.

‘We accept that this should not have happened and we apologise to Mr Borthwick.’

 ??  ?? Sold a bad deal: Edinburgh newsagent David Borthwick
Sold a bad deal: Edinburgh newsagent David Borthwick

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