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RBS pays out £500k after mis-selling annuity to dying man

08 Feb 2012 | 11:14

Rachel Dalton

Categories: Economics / Markets | Regulation

Topics: Rbs | Fsa

 

Royal Bank of Scotland (RBS) has been ordered by the Isle of Man regulator to pay compensation to the family of a man following a mis-selling investigation.

 

 

In December, it was revealed that 80 year old cancer sufferer Norman Hensher was sold a £500,000 annuity by an adviser from Isle of Man Bank (IOMB), a subsidiary of RBS, despite having a severely-reduced life expectancy.

 

 

Hensher died before receiving any of the annuity. Aviva, which supplied the annuity, pocketed £485,000 whilst the RBS adviser who sold the policy kept a commission of £15,000 from the sale.

 

However, following an investigation, the Isle of Man Financial Supervision Commission (FSC) ordered RBS to pay £500,000 to Hensher's relatives.

 

The FSC's investigation found that the IOMB adviser did not press Hensher for more details about his life expectancy, and, if it had, would have found an annuity was unsuitable for him.

 

"IOMB failed to follow fully its own internal procedures in relation to the sign off of the recommendation and disclosures to be made to the client," the FSC said in a statement.

 

"In accordance with those procedures, due to the lack of disclosures, the plan and advice would have been deemed to be unsuitable by IOMB."

 

The regulator has ordered IOMB to review all sales to customers aged 70 and over since January 2008 and to reform its internal procedures.

 

It is also conducting a separate investigation into the behaviour of the individual salespeople involved.

 

"This case has highlighted the need for all financial advisors to ensure that ill health and life-expectancy issues disclosed by a client are properly understood, taken into consideration and fully documented in the licenceholder's records when providing medium to long-term investment advice to all clients," the FSC said.

 

 

Investment Week - News and analysis for investment advisors and wealth managers.

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And under the FSA's new RDR rules they assume that all IFA's can be paid by fees as their clients are rich enough to afford fees (and the 20% VAT) whilst the average Jo Public can get "quality" but not independent advice from the High St. Banks.

 

Glad I am up for retirement soon!

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Guest JudgeMental
But what can you do! you have to buy an annuity from someone dont you? this is an absouloute discrace as the family get nothing. My private pention comes out next Chrismas when I am 60, its not a great deal of money but I would rather leave it to my family somehow as my health not that great :-S
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Simple do as we did and take it as draw down pension. That way any money remaining will be available to your spouse or other relatives when you check out. My son who is an actuary put us up to this. No normal pension provider or adviser will even tell you about this option never mind recommend it as it is the last thing they want you to do. A few years ago you had to convert the money remaining in the fund into an annuity at 70 but this is no longer the case. The only down side is that if you stick around to be a 100 then you may have been better off with an annuity.

 

I do have two small annuities as well but got very good terms on them because being diabetic, all be it a very fit and well controlled one, my live expectancy in statistical terms is lower than normal.

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Colin Leake - 2012-02-09 4:30 PM

 

Simple do as we did and take it as

 

draw down pension. That way any money remaining will be available to your spouse or other relatives when you check out. My son who is an actuary put us up to this. No normal pension provider or adviser will even tell you about this option never mind recommend it as it is the last thing they want you

to do. A few years ago you had to convert the money remaining in the fund into an annuity at 70 but this is no longer the case. The only down side is that if you stick around to be a 100 then you may have been better off with an annuity.

 

I do have two small annuities as well but got very good terms on them because being diabetic, all be it a very fit and well controlled one, my live expectancy in statistical terms is lower than normal.

 

Actually Colin - Drawdown is something that we IFA's recommend a lot. However I prefer to use it in conjunction with Phased retirement - which I will explain later. But first a few points you have wrong:-

 

"Simple do as we did and take it as draw down pension. That way any money remaining will be available to your spouse or other relatives when you check out."

 

The fund does move to your spouse when you die - all they have to do is to "reset" it to their tax code as it would have been set up on your code - not a big issue. HOWEVER! - the fund does not go to your beneficiaries intact on the death of you and your spouse. There is a 55% Recovery Tax that applies - so your children (Not friends etc - it is not deemed to be yours to give to whom you please) only get 45% of the remaining fund. If you gift it to charity - the charity does get 100% - no recovery tax.

 

This tax used to be 35% but was increased when the Coalition Government withdrew compulsory annuitisation at age 75.

 

In your post you state that the age of compulsory annuitisation was 70 - it wasn't - it was 75.

 

Other things that changed at the same time was the 5 year reviews changed to 3 yearly and from age 75 onwards annual reviews apply.

 

WARNING - One thing I would urge you to do is to check with your Drawdown Provider when you next review is. Because reviews we are getting now are hitting clients very hard indeed with the maximum income they are being allowed to take falling by over 40% in some cases. This is because the Government Actuarial Department that sets the GAD rates for Drawdown are now working on the lowest annuity and interest rates in history, plus in general peoples fund values have reduced.

 

The income you can take fromn a Drawdown is governed by 3 things. Your age, the GAD rate and the value of your fund. Of late the GAD rates have fallen off a cliff as have all interest rates, and fund values are only now beginning to recover. Yes you are now 3 years older than at your last review but that is not helping that much. So do be careful because with Drawdown your income can go down as well as up!

 

It is not for everyone.

 

As for phased retirement this is where a pension fund is segmented and a fund of, say £100K could go into Drawdown or used to purchase an annuity and this would today give the average 60 year old about 5% gross - 4% net - so £4K a year.

 

If you "phase" your pension you have to accept that you will get no single large Tax free lump sum as this 25% Tax Free Cash allowance is "sliced"to provide the income. Here, if the individual has a fund of £100K then £16K is taken so that £4K is used as "income" but is the 25% Tax Free cash from the £16K. The remaining £12K can go into Drawdown or to purchase an annuity.

 

This leaves £84K "Non-Vested" intact in your pension and that IS 100% returnable on your death or to your kids - it can even be written in trust so it falls outside of your estate for IHT purposes.

 

In year two, with any luck your £84K pension pot has grown a bit so you can take another £16K to give you a second chunk of Tax Free cash of £4K and the Drawdown account can be topped up by another £12k.

 

So if we look what happens overall - assuming no growth at all:-

 

Year 1 £100K at start, £84K at the end with £12k in Drawdown and £4K in your Bank account

 

Year 2 £84K at start, £68K at the end with £24K in Drawdown and £8K in total in your bank a/c

 

Now contrast the above to 100% Drawdown where should you and your spouse die at end of year 2, the entire fund in Drawdown is subject to a whopping 55% recovery Tax.

 

In the above example if both of you die the £68K can be paid to whoever you want Tax Free and the £24K in Drawdown is subject to the 55% recovery Tax so that is reduced to £10,800 thanks to HMRC.

 

So the Lump Sum payable on death is £78,800 and you have had two lots of "income" as slices of TFC at £4K a year so that is another £8K.

 

But the main benefit is that with Drawdown income being reduced - those in Phased Drawdown have more options and can be flexible with the income they take.

 

........................

 

Colin - if you did not have he benefits of Phased/Drawdown put to you when Drawdown was recommended to you, and your income falls significantly at your next review - you could have cause for complaint against whoever advised you.

 

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Since I was advised on what to do by my own son who is a very senior Actuary who runs the pension funds for many of our largest companies I'm hardly likely to complain. With our draw down pension I decide how much I need to draw out each year. Since I have other sources of income I always draw far less than I could, partly for tax reasons and partly because we simply don't need the money. I'm well aware of the tax that it will attract before passing to the kids but given we bought the houses they live in for them many years ago to avoid inherintance tax and that they are all in very well paid jobs that is hardly a problem. Even if were not so I'm sure they would find 45% better than the zero they woud get with an endowment.

 

I would admit that drawdown works best for those with largish pension pots and a fair chunk of cash invested as well.

 

For the record the size of our pension pot has much to do with the fact that I have always put as much into it as possible and retired late. For the last year I worked I put 100% of my salary into the pension scheme so my salary was tax free and since I was beyond 65 there were no NI deductions either.

 

I also did not opt out of SERPS so having worked since I left school and retired late my state pension is also quite high.

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Colin Leake - 2012-02-09 7:02 PM

 

Since I was advised on what to do by my own son who is a very senior Actuary who runs the pension funds for many of our largest companies I'm hardly likely to complain. With our draw down pension I decide how much I need to draw out each year. Since I have other sources of income I always draw far less than I could, partly for tax reasons and partly because we simply don't need the money. I'm well aware of the tax that it will attract before passing to the kids but given we bought the houses they live in for them many years ago to avoid inherintance tax and that they are all in very well paid jobs that is hardly a problem. Even if were not so I'm sure they would find 45% better than the zero they woud get with an (endowment.) - ANNUITY ???

 

I would admit that drawdown works best for those with largish pension pots and a fair chunk of cash invested as well.

 

For the record the size of our pension pot has much to do with the fact that I have always put as much into it as possible and retired late. For the last year I worked I put 100% of my salary into the pension scheme so my salary was tax free and since I was beyond 65 there were no NI deductions either.

 

I also did not opt out of SERPS so having worked since I left school and retired late my state pension is also quite high.

 

Sounds as tho you have it all in hand Colin. Drawdown will always work best if you can live on far lower than the maximum income you could take.

 

But do watch out for the figures at your next review. I would be interested in your sons take on the change from 120% of GAD to 100%, re the reduced income from Drawdown plans - the items mentioned still apply but this was something I did not mention because it is somewhat convoluted and complicated.

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