- exchange the guaranteed annuity rate (Gar) attached to their pension policy for an uplift in the value of their policy or,
- retain their guaranteed annual income.
When International Adviser first wrote about the story in May, Royal London said there had been a “high level” of interest from policyholders.
Nearly four in five of the 30,000 policyholders affected, who responded to the initial mailing, said that they wanted the company to proceed with the offer.
Justifying the plan, Royal London said roughly three in five policyholders nationwide with these guarantees are surrendering them because they prefer to withdraw their capital rather than buy an annuity.
The amount of the uplift will depend on the terms of the individual policy and when it was taken out, but most are expected to be in the range 40-80%.
Interest rates, a key indicator for an annuity rate that is set when a policy is taken out, varied from 7% to 15% between 1985 and 1992 and only dropped below 10% for 17 months over those eight years.
The rate of 15% was held for 12 months between 1989 and 1990.
Throwing away guarantees
Steve Webb, director of policy at Royal London, said: “We have been increasingly concerned to see the proportion of policyholders throwing away these valuable guarantees since the introduction of pension freedoms.
“With the uplift that we are offering, customers will be able to retain the value of the guarantees attached to their policies whilst also enjoying the flexibility of pension freedoms. And those customers who want to keep their guaranteed annuity rate option will be free to do so.”
Now that the High Court has approved the plans in principle, affected policyholders will receive individualised mailings letting them know the amount by which their pension fund could be increased.
Royal London said it will appoint an actuary to oversee the calculations.
A free guidance line is being set up to answer questions about the process and Royal London said it will also make a “substantial contribution” towards individual policyholders’ financial advice costs.
Policyholders who do not choose to keep their guaranteed annuity rate will have the opportunity to vote on the proposals before a final court hearing in November to sign off the process.
Affected policies will be uplifted in December 2018.