Gladstone Brookes | Pensions – a scandal worse than PPI?

Pensions – a scandal worse than PPI?

Pensions – a scandal worse than PPI?

More than a million pensioners have lost billions of pounds in a new mis-selling scandal which a top expert says could be even worse than the PPI scandal.

Dr Ros Altmann says the mis-selling of annuities has left 1.5 million pensioners up to £8.5 billion, even leaving some widows penniless, because they were sold the wrong type of annuity when turning their pensions into income.


“This is possibly the worst mis-selling scandal ever seen in Britain, including PPI, because it concerns people’s life savings and the sales are irreversible,” said Dr Altmann.

Calling on Chancellor George Osborne to act, she said: “The Financial Conduct Authority (FCA), which is under the responsibility of the Treasury, has got to step in to protect people’s pension savings and impose a duty of care on those selling annuities.”

Missed out

In her report she claims 900.000 people should have received enhanced annuities, 530 widows and widowers missed out on proper benefits due for a spouse and 90,000 people with small pension pots were given the wrong annuity.

The Chancellor is expected to make a statement on increased flexibility on whether or not to buy an annuity, but Dr Altmann claims he should also use the statement to produce a better deal for those who have been mis-sold.

Fixed income

Annuities are insurance products that retirees buy with the proceeds of their pension and are guaranteed to pay out a fixed income for life.  As a rule, buyers with health conditions should be entitled to a higher income because they are not expected to love as long.


The mis-selling of the product revolves around such pensioners not being told they were entitled to a higher income and therefore missing out.  Pensioners with poor health, on medication or who smoke could have received up to 40% more income if they had signed up to an enhanced annuity.

Dr Altmann’s report suggests that just under a million people bought the wrong product and missed out on £5.4 billion.

“But the truth is no-one knows how much this has cost pensioners because no-one has been keeping records,” she said.


Up to 53,000 widows are believed to have been left penniless because their spouse didn’t realise their annuity would not pay out to their partner if they died.  Unlike final salary schemes which automatically pay your pension to your loved ones after you die, you must specifically ask for a joint life pension to do this and pay extra for it.

The annuities were mis-sold in such circumstances because the pension holder was never told.  The family only become aware when the money stops after the pension holder dies.


There is confusion too over the terms used and whether or not they are understood by the person buying the annuity.  The report says the jargon used by the insurance companies such as ‘single life, ‘joint life annuity’ and ‘ten year guarantee’ are not properly explained to prospective purchasers.

Many of the cases taken to FOS involved the ten year guarantee which widows are adamant their partner believed meant the pension would continue for 10 years after their death.  It actually means it is guaranteed pay out for 10 years after the annuity was taken out.


The report claims such misunderstandings mean widows and widowers could have missed out on as much as £2.6 billion.

Dr Altmann has called on the FCA to force annuity providers to ensure customers receive the correct income from their purchase and to explain the various benefits and drawbacks for each product in plain English.


“At the moment they don’t have a duty to disclose their charges properly or to warn customers of the risks in plain English.  All they do is send reams of paperwork which people don’t understand,” she said.

The remaining 90,000 smaller savers who were also sold the wrong annuity for their needs could have missed out on £450 million, the report says.


Aviva is the first insurance company to admit that some of its annuities may have been mis-sold and have started paying compensation to those affected.  Experts believe that industrywide as many as 100,000 people a year may have been mis-sold between 2007 and 2013.  Successful appeals in these cases could mean increases in pensions worth thousands of pounds a year.

Dr Altmann says: “We will never uncover the true extent because some victims have died, but older people were failed on any test of fairness.”


Studies have revealed as many as 60% of people should have received enhanced annuities paying out more money, but the FCA has found only 7% actually received the additional payments.

The regulator has started an investigation into pensions after concluding the pension market was ‘broken’.  It has been classed as a thematic review which means companies can be forced to look at past sales.


Claims for compensation must be made direct to the pension provider.  Those affected will be in their sixties and have bought their annuity between 2007 and the present day.  You will be required to produce evidence of your medical condition at the time you signed the contract and you will need to show that:

  • You were not asked about your health
  • You were not told medical conditions could give you a bigger payout, or
  • You were not made aware of your right to shop around for the best deal


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