Pension firms agree payout for 200,000 sick retirees

AN ESTIMATED 200,000 pensioners in poor health will be compensated by two of Britain’s biggest pension firms after it emerged that they were missold annuities designed for healthy people.

Insurance giants Standard Life and Prudential have both admitted potential mis-selling and will shortly be writing to customers who have lost out as a result of being sold the wrong pension.

The move by the two firms is a victory for The Daily Telegraph, which has for years warned that large numbers of sick retirees were being ripped off by being denied “enhanced” annuities, which pay higher incomes to pensioners with lower life expectancy.

Last night experts said it was “shameful” that insurers were only now compensating pensioners who were sold policies years ago, during which time many are likely to have died.

More than 200,000 pensioners are believed to have been sold annuity contracts that failed to account for their health in the six-year period under review (2008 to 2014), according to calculations by pension firm Hargreaves Lansdown. Most were never made aware that relatively common ailments such as diabetes and high blood pressure could have boosted their payouts by 20 per cent or more.

The Financial Conduct Authority (FCA) has estimated that the average affected customer, with a pot worth £25,000, would have lost out on between £120 and £240 in annual payments. Over a typical 25-year retirement this equates to between £3,000 and £6,000.

Analysis by The Telegraph of paperwork sent to customers found companies were failing to make clear reference to enhanced payouts. Often the information was buried in the small print in jargon, such as: “We do offer

enhanced rates for impaired lives.” Unlike the PPI scandal, in which there was no requirement for financial firms to pay posthumous compensation, pensions companies will be forced to track down the families of the high proportion of annuity mis-selling victims who have since died and compensate them. In 2015 this newspaper was the first to break the news of a mis-selling investigation and formal compensation scheme being prepared by City watchdogs.

Last October the FCA announced a formal redress scheme to compensate victims following its investigation, but refrained from naming and shaming the companies responsible for mis-selling. Last night a spokesman for the regulator declined to comment on the revelations by Standard Life and Prudential.

Tom McPhail, head of policy at Hargreaves Lansdown, said: “One of the most disappointing aspects of this whole shameful affair is that it has been common knowledge for years that insurance companies were doing this. You have to ask why it has taken so long for them to finally do the right thing for their customers.”

Standard Life has set aside £175 million in anticipation of payouts. Prudential, which sold up to four times more annuities than Standard Life over the period, has not yet said how much it anticipates to shell out. A spokesman said it expects to have compensated mis-selling victims within two years.

Five other annuity companies were included in the FCA’s review, meaning customers of firms other than Prudential and Standard Life may also receive compensation in time.