Aviva mis-sold hundreds of annuities. Have you missed out?

Sarah Coles
saddened older woman sitting...
saddened older woman sitting...

Aviva has discovered 250 cases where it sold sick retirees the wrong kind of annuity, and experts have estimated that this could just be a small fraction of the total number affected.

If these practices were widespread, then across the industry more than 100,000 people a year could have been misled into taking the wrong deals.

The issue relates to the kind of annuity people were sold. Alongside the traditional annuity (which converts a lump sum into a monthy income) is something known as an enhanced annuity. These can be bought by people who have a reduced life expectancy, and provide around a 25% better return than a traditional annuity because they expect to be paid out over a shorter period.

The little-known fact about these annuities is that it doesn't take much for the pension companies to think that your life expectancy is reduced. So, for example, if you have diabetes, you smoke, you are overweight, or you have high blood pressure, then you could qualify for one of these annuities. In fact as many as 60% of pensioners could get one.

Calculate your pension income options


However, pension companies have not gone to particular lengths to inform people that these kinds of deals are available, and research from The Telegraph found that just 7% of people who bought an annuity from their pension provider were automatically offered an enhanced one.

The Daily Mail reported that Aviva was carrying out a routine check of annuities sold in 2013, and discovered 250 cases where the pension company failed to ascertain the health of the retiree, or ask the right health-related questions, so they assumed they were fit and well when they provided the quote.

It has offered back-dated payments worth around £500 each, and increased annual payments by an average of £120. It also added that customers would be contacted and compensated, and these 250 cases did not need to do anything in order to receive their payments.
How widespread?

The question now is how widespread the practice is. The FCA has been investigating the selling of annuities (when financial advice wasn't taken and companies sold direct to consumers), and until it issues its report later this year, we won't know whether there were only 250 isolated incidents. Industry figures would seem to indicate that there are far more.

In theory, 400,000 people buy annuities each year, and half of them buy the deal offered by their pension provider - rather than shopping around. If 60% of people qualify for enhanced annuities, then just over 125,000 of the 200,000 should have bought this kind of annuity. However, The Telegraph quoted FCA figures showing that under 14,000 of them did - which means that up to 111,000 people a year could have been sold the wrong kind of annuity by their provider.

As a result of its review, the FCA could decide that anyone mis-sold a pension between 2007 and 2013 (at which point the pension companies agreed to tell people they had the right to shop around when buying an annuity and they had the right to an enhanced annuity in certain medical circumstances) could apply for compensation.

Beware These Annuity Pitfalls
Beware These Annuity Pitfalls

Calculate your pension income options

What should you do?

Everyone who retired within this period, and bought a standard annuity from their pension provider, should ask themselves a series of questions. Consider whether your pension company asked about your health before sending quotes. If you spoke to someone in a call centre, did they ask specific questions about things like smoking, or did they just ask very generally about your state of health? When they sent quotes through, did they send quotes for enhanced annuities?

If you think you have been mis-sold an annuity, your first step is to contact your pension provider, and explain why you think you are the victim of mis-selling. You'll need to find all the paperwork you can relating both to your pension and your health.

If you are not satisfied with the response, you have the right to take your case to the Financial Ombudsman. If it decides that you have been mis-sold an annuity it will order the pension company to put you in the same position you could have been in if you weren't mis-sold to. This is likely to be in the order of hundreds rather than thousands of pounds, but they should also make adjustments for future payments, which will add up over the years.

Pensions on AOL Money

New pension rules: how your retirement will be affected

Pension pot dippers could pay a fortune in fees

Pension changes 2015: confused into taking poor deals