Millions face new pension scandal
Wednesday 10 July 1996
Those most at risk have opted out of their state earnings-related pension scheme (Serps) and have a rebate paid annually by the Government into a personal pension plan instead. No other contributions are made to the scheme.
A clause in the Pensions Act, introduced last year, forces insurance companies to offer a special type of option, called income withdrawal or deferred annuity purchase, to all those with a "rebate-only" pension who are about to retire. In return for giving up an immediate right to a guaranteed, but lower, annual income they can draw down larger payments until the age of 75.
If the larger payments are drawn down until that age and investment performance is poor, pensioners would only be left a small pot of capital to buy an annuity to top-up the basic state pension.
Insurance companies believe that unscrupulous salespeople could mis-sell such schemes to people who want higher payments immediately when they retire, without advising them of the dangers.
The Association of British Insurers, the industry's trade body, is so concerned that it is lobbying the Government in the hope of winning a change in the law.
One insurance executive, who would not be named, said: "What worries me is that while most of us will be scrupulous, it only takes a few to create mayhem. Even 1 per cent of mis-sold policies could lead to tens of thousands of cases over the years. Unless we act now, we could be talking several times that number."
The new-style deferred annuity pension was given the go-ahead by the Government in November 1994.
Instead of buying an annuity - a guaranteed annual income - pensioners use a slice of their total pension fund to live on. The rest of their fund continues to be invested and is expected to grow faster than the cash draw-down.
If investment performance is poor, however, the value of the fund could shrink at the time when people need it most.
- 1 The West has it totally wrong on Lee Kuan Yew
- 2 Watch: Man takes selfie every mile of 2,600 mile hike, creates amazing timelapse video
- 3 The day I starred in Only Fools and Horses
- 4 #FreeTheNipple: Women in Iceland bare breasts in solidarity with trolled student
- 5 Scientists have discovered a simple way to cook rice that dramatically cuts the calories
Ukip supporters are 55 or older, white and socially conservative, finds British Social Attitudes Report
JK Rowling responds to fan tweeting she 'can't see' Dumbledore being gay
Jeremy Clarkson sacked live: Alan Yentob 'wouldn't rule out' ex Top Gear host's BBC return
Revealed: Putin's army of pro-Kremlin bloggers
Germanwings plane crash: Co-pilot Andreas Lubitz wanted to 'do something people would remember him for'
The West has it totally wrong on Lee Kuan Yew
iJobs Money & Business
Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...
Negotiable: Recruitment Genius: You will be the first point of contact for all...
£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...
£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...