Firms that slash thousands from your hard-earned pension pot

Up to 11 million savers trapped in failing pension funds are being denied thousands of pounds of income in retirement.

These pension funds, which are closed to new investors, are offering their savers retirement incomes up to 60 per cent lower than they could get elsewhere.

Investors with personal pensions must usually use the money they build up to buy an annuity which pays their retirement income.

This is Money and MailOnline have created a new wealth-check tool – powered by Pensiontracker – that will calculate how much you need to save for retirement:

But Money Mail has gathered evidence from financial advisers, including Annuity Direct and the Retirement Adviser, showing these zombie funds of fer much smaller incomes than could be bought elsewhere with the same amount of savings.

  • A 65- year- old man was offered an annual income of £1,930 by Equitable Life on a £42,035 pension pot. He got £2,486 elsewhere. If he lives for another 20 years he will gain £11,120 over his lifetime.
  • A 60-year- old woman with a £34,204 pension pot with Windsor Life was offered £1,741 a year, but got £2,227 – almost a third more – with Just Retirement.

For those in ill-health or who smoke, the difference can be even more striking:

  • A 64-year-old man who smokes and has high blood pressure was offered an annual income of £1,965 from closed life firm Guardian on his £31,423 savings. His adviser got him £3,136 per year – 59 pc more – with Just Retirement.
  • Another 64-year-old man, recovering from cancer, was offered £1,633 a year on a £31,190 pot by Lincoln. He got £2,370 by going elsewhere – an increase of 45 pc.

Up to £190 billion is festering in 70 so-called zombie with-profits funds which continue to take money from existing investors even though they no longer market their pensions.

They include Phoenix, Equitable Life, national Provident Life, Abbey Life and Windsor Life. Phoenix alone has 2.5 million pension savers and 600,000 pensioners drawing an income.

Bob Bullivant from Annuity Direct says: ‘These zombie funds are often offering savers appalling deals, wiping thousands of pounds off their pension income in their retirement.’

Those in ill health – or with lifestyle issues such as smoking or weight problems – are getting an even worse deal. this is because zombie firms don’t offer enhanced annuities, which provide bigger payouts to reflect lower life expectancy.

It is estimated that four in ten savers could qualify for an enhanced annuity paying up to 60 pc more.

Because they sell annuities only to existing savers, these firms don’t have to publish their rates, so savers have no idea they are getting a raw deal. Although they have been forced to improve their customer literature, zombie firms are notorious for poor communication with customers, which can have devastating consequences for those approaching retirement.

As you approach retirement, you should receive a ‘wake-up’ pack from your insurance company. this should lay out your options and explain you can shop around.

Nick Flynn of the Retirement Adviser says: ‘These closed funds don’t have to compete for new business by offering good rates and service. they also don’t seem to care about reputational damage.’

Shellie Wells, spokesperson for Phoenix comments: ‘our annuity rates are fair and half of our retiring policyholders have very attractive guarantees attached to their policies, which usually outweigh the benefits of exercising the open market option. We actively encourage policyholders to “shop around” for their annuity.’

A Windsor Life spokesman says: ‘We are proud of the rates we offer, which come out very favourably within our peer group.’

source: dailymail.co.uk

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