|
|||||||||||||||||||||||||||||||||||
RECTIFICATION - Bulletin No 3 |
|||||||||||||||||||||||||||||||||||
|
Bulletin No 3 July 2004 SUBMISSION
TO THE FSA
The
Working Party’s Letter and Report to John Tiner of the FSA was
submitted on 6th July . It is being considered and we are
still awaiting a reply RECTIfICATION
OFFERS.
Several
members who retired around 1995 report that ELAS do not consider any
compensation is due to them under the Revised Scheme. No figures are
provided to back up this assertion and so annuitants are requesting the
figures used to arrive at that conclusion. Other
Offers are trickling in for those who retired later and they seem to
take the bald form of saying that there is an entitlement of £……….
Per annum which will be backdated and paid as a supplementary level
annuity (sometimes but not always by another provider) to run alongside
the current reducing annuity. Again supporting figures of calculation
are not provided. The
following words are being made in many cases of recent offers “To
calculate our offer we began by working out the difference in value at
retirement between the GAR annuity we should have offered you and the
annuity you actually took up. To
work out the annuity we should have offered you we add the new
final bonuses to the guaranteed fund you took when you retired. We then
apply the GAR to that fund to decide on the income you could have bought
using that policy on the day you retired The GAR annuity we should have offered (taking into account any overpayments on non-GAR benefits) would have been more valuable that that which was taken so our offer is simply to increase the existing annuity and pay a lump sum to cover past instalments we would have paid you. WHY
ARE ELAS RELUCTANT TO PROVIDE SUPPORTING FIGURES?
It
seems outrageous that annuitants are not being given a proper analysis
of their final bonus shortfalls Of course it’s a complicated subject
but after 4 years of dealing with the problem it would be reasonable to
assume that a system could have been devised for clear presentation of
the key figures. So why are they reluctant?
The answer might be found in the following notes we have made on
the New Bonus Resolution:- THE
HOUSE OF LORDS
ruled the Society was not entitled to award differential final bonuses
according to whether or not the policyholder bought a GAR annuity. The
annuity purchase decision -during the time of the differential bonus
practice- was made with incorrect bonus information and with doubt in
many cases about whether a policyholder was aware of his policy GAR
rights. When
a lower bonus was applied to the GAR version of the fund it meant the
fund used to purchase that annuity was smaller than the fund used for
buying a non-guaranteed annuity. This point was clearly illustrated in
the House of Lords in the Hyman
case “It
is clear from the opening words that the provision applies only to those
who take benefits in annuity form. The effect of the singularly opaque
words is to reduce the final bonus allotted to those taking the
guaranteed annuity by the ratio of the current rate to the guaranteed
rate. Thus if the current rate is 8% and guaranteed rate is 10% the
final bonus to those taking the guaranteed rate I s 8/10ths of the final
bonus as declared. The effect, so far as
Mr Hyman was concerned is demonstrated by the valuations provided
to him by the Society.. The Policy Annuity Value of his policy
attributable to the premiums paid and reversionary bonuses already
declared was £20,867.67. To provide an annuity of £1099.92 per quarter
at current rates required a final bonus of £26,867.67 but at the
guaranteed rates the requisite final bonus was only £19,165.81.” As
a result of this Judgement the Society’s Board decided to change the
rate of final bonuses awarded for those years in which differential
rates applied and set revised final bonuses (The New Bonus Resolution)
for each year from 1994 to 2000 at a level between ·
The higher level
which previously applied where policyholders took benefits at the
current annuity rate (CAR) and ·
The lower level
which previously applied where policyholders took benefits as a GAR
(guaranteed) annuity THE
ANNUITANT’S APPRAISAL DILEMMA
The
ELAS Questions and Answers Leaflet includes the following statements Q.
What
happens if I am not satisfied with the offer? A
We have taken external legal
and actuarial advice and gone to considerable effort to ensure that the
rectification scheme (2003) provides fair compensation for our failure
to inform you of the correct value of the GAR annuity under your policy
which is we are advised consistent with what a court would award for our
failure to correctly state the value of the GAR annuity.
Therefore
we reserve the right to conclude that you are not entitled to any
compensation and to withdraw the offer if we find evidence which we have
not previously taken into account including that you would not have
taken a GAR annuity had you known its correct value. If you have not
received a final decision letter within eight weeks of your complaint,
or disagree with the decision, you will then be able to take the matter
to the appropriate complaints authority, details of which will be
provided. It
is clear that when a policyholder chose his annuity he did so with
incorrect information. He
made a binary choice between two different types of annuity on the
incorrect assumption that the fund size was the same for both. But it wasn’t
according to the House of Lords Judgement in which we read that the
final bonus allotted to the GAR policies was smaller than the one
allotted to the WP policies. So
it looks as though there are 3
different versions of that crucial final bonus. ·
The
one allotted at the time of retirement ·
The
correct one that should have been allotted and was higher
than the actual one allotted ·
The
new one arising from the New Bonus Resolution. It
is arguable that with insurance contracts of “utmost
good faith” there is an obligation on both parties to
disclose all relevant facts and issues and that non
disclosure by either party
could render the contract void. So
it is clearly important to get absolute clarity on the crucial facts
that an annuitant should have been given in making the annuity purchase decision. Therefore
to avoid further uncertainty and doubt ELAS should be asked to provide
the full facts of the annuitant’s bonus allocations on the following
format A.
UNDER THE DIFFERENTIAL BONUS POLICY
B.
AFTER THE NEW BONUS RESOLUTION
All
of this information must be readily available especially after 4 years
of juggling with the Rectification Scheme. It would be reasonable to
request this information to be supplied within 28 days and then if it is
not to refer the matter to the FOS dispute resolution procedure. WHAT
ACTION SHOULD THE ANNUITANT TAKE ON RECEIVING AN OFFER IN THE MEANTIME? This
will depend on individual circumstances and the strength of feeling
about the presentation and fairness of the Offer, but the options appear
to be as follows
CONCLUSION
To
enhance our understanding of what it happening it would be helpful to
receive details of any offers made, and a further Bulletin will be
issued as soon as we receive a response from the FSA. Peter
Butler |
|||||||||||||||||||||||||||||||||||
