Annuity Policies Commencing between January 1^st and March 30^th in any year

Annuity Policies Commencing between January 1^st and March 30^th in any year.

In my report I mention that for a specific group of With-Profits Annuitants, the impact of the so called 20% reduction is even larger than it should be and who are affected worse than other annuitants, simply because of the date of commencement of their annuity.

The reason is that in these circumstances, the Society has decided to set the Declared Bonus rate to zero for the first year.

In normal circumstances this makes absolutely no difference to the Total Gross Annuity being paid, other than it transferred more of the annuity into the un-guaranteed Final Bonus Annuity and as a consequence of the way the Society computes the annuity, less of the annuity was retained in the guaranteed Declared Bonus Annuity element.

This is probably easier illustrated in the two examples set out below and which are based on my annuity from the Society.

Model A sets out in tabular form the payments I have received from the Society since March 1^st 1997 and broken down by the individual elements of the annuity.

In Model B I have changed the Declared Bonus Rate to 7.5%, the rate applicable for the year and immediately you will notice the elements that are NOT affected and those that are changed. Specifically, until 2003, the Total Gross Annuity is not changed

But you will also notice that in my current year, that is March 1^st 2003 to Feb 29^th, 2004, my Total Gross Annuity would have increased by £271 per annum.

You should also note that:

a)      My Declared Bonus Annuity is relatively greater and my Final Bonus Annuity is proportionately smaller since the action of the Society is to reduce the DBA.

b)      The DBA is “guaranteed” under the terms of the annuity contract but the FBA is not “guaranteed” and can be removed at any time. (It is this clause that the Society has used to give it the authority to reduce our annuities.)

I have to stress a number of points:

a)      In normal circumstances the method chosen by the Society would have had NO effect on our Total Gross Annuity.

b)      I am quite certain that the Society would have not realised the impact on our income by the introduction of the so-called 20% reduction when they started this practice in the late 80’s.

c)      However, this reduction will never be recovered no matter what rates are chosen in the future by the Society.

d)      It follows that this represents a permanent loss of income to this specific group of annuitants, which in my case given that I am 63 and die aged 80 is equivalent to a loss of income of £4,607. For other annuitants this will be greater or smaller depending on their age and the size of their annuity payments.

The Society has written to me via the Internet stating that since the DBR is not declared until April of each year, they do not know what rate to use and thus set the rate to zero. As I say in normal circumstances this would not have mattered, but in the specific circumstances of the 20% reduction it does. The Society could just as equally taken the current DBR, which is what I have done or chosen some Interim Rate, which is what it does for the Total Gross Annuity. In my opinion, choosing a rate of zero is the least logical solution.

It is totally illogical to treat this group of annuitants this way. Self evidently, and other things being equal had I chosen to start my annuity on April 1^st, which would have made no difference to me, I would be that much better off.

The consequence is that the Society has treated this group of annuitants differently from the majority and thus is in breach of its own fiscal duty to treat all annuitants the same.

I will be dealing with the Society on my behalf but before I do so, should any annuitant wish to join his or her complaint with mine, then please e-mail at the usual address.

Peter Scawen:  pscawen@aol.com