What Are Annuities?
An annuity guarantees you an income for life in exchange for the lump sum value of your pension pot at retirement. This means that you don’t have to worry about how your pension will cover you for the rest of your life, as you’ll instead have a set income.
Investing in an annuity is one of the biggest decisions you can make in your lifetime. It is crucial that you get the best advice and make the right decision, as once an annuity is bought you will not be able to give it back.
Choosing the right annuity can be tricky as there may be a number of different annuities available for you to buy. Annuities can often pay out different amounts in different ways. This can make your choice quite confusing, and those who sell you your product may not be as helpful as they should be.
How Can They Be Mis-Sold?
The Financial Conduct Authority are currently looking into the annuity market as they believe that as many as 1 in 4 retired savers could have been mis-sold.
There are many ways in which you could be mis-sold an annuity. Your pension provider may encourage you to move your pension pot over to an annuity with them. As the pension provider is familiar, many people go for this option and this is a major cause of mis-sold annuities.
You may also think that you are speaking to someone who advises on choosing the right annuity, when really the guidance you are receiving is from a salesperson. The salesperson is there to sell the company’s products, and so isn’t able to provide you with impartial financial advice. The difference between guidance and advice is a very fine line and therefore makes this difficult to spot.
Your Open Market Option
The Open Market Option (OMO) is your legal right to ‘shop around’ to find the right annuity. You don’t need to buy an annuity from the company your pension is provided by, and you can take your money elsewhere to get a better deal. For example, many people are eligible for what is called an enhanced annuity, but not every pension provider offers this.
The Financial Services Authority (FSA) has highlighted that many pension providers have not explained the OMO right to retirees, if this is the case then you may be eligible for compensation.
Things To Consider
- Were you made aware of the right to the Open Market Option?
- Did you complete a health questionnaire to find out if you’re eligible for an enhanced annuity?
- Did you know that once entered into the contract couldn’t be changed or refunded?
- Were your spouses’ needs considered in your annuity choice?
If your answer to any of these questions is “no”, you may be entitled to compensation for a mis-sold annuity.