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Annuity query

Should I take up this matter?

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Self employed client has recently organised an annuity from his 65th birthday in June.  He has just supplied me with the correspondence along with his annual records. Some two-thirds of his total fund was subject to a 'Guaranteed Annuity Rate'.

He had contributed to X Insurancoe co for over 30 years but they no longer do annuities.  He was advised that if he purchased the annuity from Y the guaranteed rate would be honoured.  He did so.

X gave him an estimate of his (single life) annuity in March this year assuming he took the 25% tax free lump sum with a 5 year minimum period.

In the event the total fund was slightly higher than was projected in March.  He took the 25% lump sum but he did not opt for a minimum period.  And yet the actual annuity from Y is some 15% less than the March projection by X

I realise annuity rates move and that times are unusual.  But a good chunk of the fund was subject to a 'guarantee'.

Would you take up the matter and, if so, with X or Y?

Replies (8)

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By memyself-eye
14th Aug 2020 11:07

Neither - for a whole host of reasons - not least that March was the start of the 2020 stock market 'coronavirus' crash.

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By meadowsaw227
14th Aug 2020 11:30

I would definitely chase it up once I convinced my self of the guarantee being in place and being told it was being honoured.
A letter/phone call costs nothing.

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By John Stone
14th Aug 2020 13:01

Not sure that is entirely relevant. As I said the total fund value held up and I believe annuity rates reflect interest rates more than share prices.

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By meadowsaw227
14th Aug 2020 11:28

.
If he has a "guaranteed annuity rate" in place and was told it was being honoured you can not lose anything by chasing X initially and then Y once you haver confirmed such a guarantee was in place .

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Hallerud at Easter
By DJKL
14th Aug 2020 11:48

Surely he got a more up to date quote from them nearer June, the March one would surely have had a limited number of days when it would be honoured?

Without seeing how the 2/3 and 1/3 sums gave rise to their respective annuity streams it is impossible to know if the guarantee has been ignored in June, but on the face of it for the 1/3rd not guaranteed giving rise to a 15% drop in the total annuity implies a 45% drop in the non guaranteed part- that does look suspect.

(It is so many years since I dealt with purchased annuities I now have no idea what processes the life companies follow re their quotes)

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By memyself-eye
14th Aug 2020 14:27

Maybe 45% is not so suspect given the market rout between March and June both with equities and the expectation that rates would turn negative.

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Hallerud at Easter
By DJKL
14th Aug 2020 14:47

The March to June stockmarkets (for me anyway) have actually been positive , March was the low point and my funds have clawed their way upwards since then, nowhere back to peak which for me was July 2019.

Even from peak July 19 to March 20 my percentage drop was only 30%, if measuring from say 31 Jan 2020 to 31 March 2020 my drop was 26%, and from the March low I was back to only an 11% drop from 31 Jan 20 by 30th Jun 20. (currently sitting about 10% down)

(I do not check every day but every week or so I check investments and jot numbers into my diary)

It obviously depends how one invests/where one invests (I tend to be world markets with an Asian emphasis rather than say UK), but 45% is having a laugh re most share price movements.

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By Anonymous.
14th Aug 2020 20:58

Who buys an annuity these days?! Invest the fund and draw down. You have an income and still have the capital - which is also IHT advantaged.

Did the client take financial advice? Can't believe any IFA would advise an annuity (unless the annuity rate was 20% or something!).

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