How EU meddling slashed £15,000 off your pension

Loyal savers hit by record low payouts. And, yes, Brussels red tape is to blame

SAVERS have been hit by a secret attack on pensions that could strip £15,000 from their retirement income. Insurers have used EU red tape as an excuse to chop pension payouts to record lows — while reportedly pocketing bumper profits.

Over the past three years, some firms have quietly slashed the payout from a £100,000 fund by as much as £800 a year.

They say the EU is to blame for introducing new rules forcing insurers to keep in reserve money they would otherwise have paid to pensioners.

Big firms also claim George Osborne’s pension freedoms have dented their profits by allowing savers to cash in their funds from age 55, rather than withdrawing the money slowly over retirement. And they say low investment returns mean they have less to give out to customers.

However, insurance insiders have told Money Mail that some firms are deliberately hitting people retiring this year with extra-low payouts in a bid to boost their profits.

Senior figures revealed that insurance companies are trying to recoup the cost of expensive promises made to savers who retired in the 1990s and early 2000s, when pension payout rates were around three times higher than today.

Shockingly, Britain’s biggest firms have been given the green light to hide these cynical payout cuts.

Money Mail can reveal that they have broken a promise to publish the rates they offer to the over-55s who want to turn their savings into an income for life.

After years of criticism, insurers had agreed to list their so- called annuity rates on a dedicated page on the Association of British Insurers’ trade body website. This was supposed to enable customers to see how the offer they received stacked up against the best deals in the market.

But until a few weeks ago, these vital figures had not been updated for nearly 18 months, and now the page has been removed.

Figures obtained from independent experts show the gap between the best and worst deals has ballooned to 35 pc. Yet just four in ten people are shopping around — down from half in 2014-15.

It means tens of thousands of people who want the security of a guaranteed income for life face retiring on a pittance — with some getting far less than others in return for their life savings. Frank Field MP, chairman of the powerful Work & Pensions select committee, says: ‘It has never been more important for insurers to be clear about what they are offering savers.

‘If people are thinking about taking advantage of new pension freedoms, they need a clear idea about what rate of annuity they can get.’

CUTS THAT LAST A LIFETIME

AnnUITIES have long been criticised as being poor value. You hand over your life savings and, in return, get a fixed income that lasts as long as you live.

This should give you peace of mind that you will not run out of money if you live longer than expected.

However, once you have bought an annuity you cannot change deals, and when you die your pot dies with you.

The sick and those not as likely to live a long life should be entitled to higher annual payouts because firms do not have to pay out as much.

But, in the past, these customers missed out on the better deals because of sneaky sales practices a some firms,

The furore led George Osborn in April 2015 to scrap rules tha effectively forced 400,000 people year to buy annuities. His new freedoms meant you could dip into your pot whenever you wante — with the result that sales o annuities plunged.

Yet annuities are still the only wa of providing a guaranteed retire ment income without having t worry about stock market returns So for many people they are still an excellent option — provided you ge a fair deal.

In the final three months of las year, 21,200 customers ploughe £1.1 billion into annuities — exceed ing sales of plans to customer who wanted to keep their nest- eggs invested. However, few will have realised quite what a poor deal they are getting.

Pensioners have been stung by new EU rules that force insurers to stockpile cash for emergencies — and introduce complex software to do this.

The laws, called Solvency II, came into force this year following a decade of discussions and delays. The idea is to prevent big insurers collapsing should the economy turn sour.

But firms complain that th changes have cost them around £3 billion — and they have passed on these costs to older savers.

A 65-year-old with a £100,000 po who bought an annuity with Aviv

in May 2013 would have received £5,544 a year. But those payouts would plunge to £4,792 — £752 a year less — had the saver taken the same deal at the start of May 2016. Over a 20-year retirement, the saver leaving work now would receive £15,040 less from Aviva, which made profits of £ 1.4 billion on its UK life business last year, than if they had taken their pension in 2013. The same customer with Legal and General would receive £4,970 a year now. In 2013, the payout would have been £5,500 — so a loss of £10,600 over a 20-year retirement. These figures show the EU in a different light to the claims made last week by George Osborne, who said pensioners would be up to £32,000 worse off each if Britain votes out on June 23. The Chancellor claimed that leaving the EU would dent people’s savings, making them grow more slowly and less valuable in the future.

But our research shows savers are already suffering from demands made by Brussels policymakers.

BETRAYAL OF OLDER SAVERS

CrITICS are now questioning whether insurers are using these EU rules — which make up 3,200 pages of legislation and are largely incomprehensible to anyone outside of the insurance world — as a convenient excuse to offer customers a poorer deal than they need to.

They say companies have known about this threat for 14 years, so this most recent cut to rates is not justified. Payouts on annuities have plunged by up to 17pc in the past year alone, ahead of Solvency II coming into force.

Insurers also blame the paltry returns on the shoddy performance of government bonds, known as gilts, which are used to decide annuity prices. When the returns on gilts — called yields — are high, annuity rates rise. When yields are low, they fall.

Even though gilt yields have tumbled to depressing lows, there are huge differences in the amounts that firms have lopped off payouts to reflect this.

Analysis by independent pensions expert Billy Burrows shows that at the height of the eurozone crisis in April 2013, returns on gilts were within a whisker of those today. In May 2013, gilt yields were at 2.27 pc. At the beginning of May this year, they were 2.07 pc.

‘Undoubtedly the EU rules and falling gilt yields have hit annuity companies,’ he says.

‘But I wonder whether these cuts have gone even further than they should have done and insurers are using these reasons as something of a smokescreen for cutting rates.

‘It’s all so complex that it’s very hard to tell whether savers are now getting a fair price.’

Industry insiders say the rate cuts are at least partly down to firms clawing back the cost of payout promises made to savers when rates were higher.

In 1990, a 65-year-old would have received around £15,000 a year for life from a £100,000 pot.

One insurance industry leader told Money Mail: ‘ These big payouts are absolutely killing them [the insurers].

‘Part of the reason why rates are so low now is that they are trying to get some of that back.’

In other words, they are taking in bigger profit margins now to pay for their past misjudgments.

And there are other reasons why savers taking out annuities this year will be more likely to walk into a shoddy deals.

According to the most recent official figures, as many as six in ten annuity customers take the first deal they are offered by their insurer. This is an increase on previous years, when half of savers would shop around.

Those who do try to find a better deal have an even harder job on their hands after insurers quietly stopped declaring how much they are offering customers.

An Aviva spokesman says: ‘Comparing annuity rates with gilt yields is too simplistic.

‘The profits from annuities emerge gradually over time rather than up front: it would be wrong to link them directly with a change in annuity rates.’

Stephen Griffiths, commercial and product director at Legal & General retirement, says annuity rates have been hit by the new solvency rules forcing insurers to hold more capital.

He adds: ‘Gilt yields have dropped further since May 2013 and this has impacted annuity rates.’

The ABI says it stopped collecting and publishing annuity rates as a result of the new freedoms. It says the shake-up meant the figures were no longer relevant.

Dr Yvonne Braun, director of policy, long- term savings and protection, says: ‘Annuity rates continue to reflect many factors, including underlying Government gilt returns and ever-increasing life expectancy, along with EU and UK solvency requirements.’