Retirement savers forced to put their small pot pensions into an almost worthless annuity may get a cash windfall.
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One insurance company is inviting customers with annuities worth as little as £1 a month for life to convert them into cash even if they are paying out.
The invitation only extends to retirees aged over 60 years old with pension funds of £2,000 or less.
Phoenix Life is offering the annuity cash converter for a limited time.
Many retirees accumulated one or more small pot pensions when working for employers for only a short time. Their only option at retirement was to convert this cash into an annuity until pension rules changed in 2012.
The new rules let retirees take up to two small pot funds worth less than £2,000 as cash.
Most retirement savers giving up work have been allowed to take advantage of the new rules by pension firms, but this has left those who had already bought an annuity stuck with miserly returns.
Phoenix Life is the first firm to offer the annuity cash converter.
The firm says the cash value offered will be in line with any features and benefits the retiree would expect to receive under the annuity contract they have with the Phoenix Life.
The move is a landmark for pensions firms, as annuities are bought for life without the option to cash in or refund.
Many consumers and industry watchdogs have criticised the performance of annuities and hope the redemption offer will trigger industry-wide action to let customers locked into contracts offering poor returns a chance to make more of their cash.
Calculating the benefit
“Our customers now have a choice. They can continue receiving the small monthly payment or take a one-off cash payment now,” said a spokesman for the firm.
“We have a lot of customers in this position and we will write to those qualifying for the offer with full details of the payment. They will have six weeks to consider and apply for the cash.”
The letter will include a statement of account and an explanation of any tax issues involved if they accept the offer.
Some fear that annuity customers will pay more for financial advice about whether they should take the offer than the offered payment will be worth, but generally the industry welcomes the move.
One of the problems for annuity holders is how to calculate how many years their payment is likely to last as a comparison against whether the offer is fair.
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