Royal London will head to the courts to get permission to give 33,000 clients with a guaranteed annuity rate (GAR) the opportunity to swap their pension for cash.
New Model Adviser® first reported that Royal London was asking clients for their opinions on an offer to swap a GAR in February.
Under the plans clients will be offered a cash sum in exchange for losing the guarantee. The full value of this will depend on the client’s plan, but is likely to be between 40% and 80% of their fund value.
Around five in six of the clients contacted said they wanted an offer to be made. As a result Royal London will head to a high court hearing on 25 June to consider whether it can be granted a scheme of arrangement.
Royal London will subsidise financial advice for those who want it before making a decision. It will also arrange free guidance for all clients making a decision.
Under rules introduced by the government when freedoms came into force in April 2015 anyone with a GAR worth £30,000 or more must seek advice before transferring out of their contract.
According to Royal London only one in three people were taking cash instead of their GAR pension before pension freedoms were introduced, but this has now risen to three in five.
Steve Webb (pictured), director of policy at Royal London, said the offer is aimed to give people the choice to take a lump sum rather than relying on being able to buy an annuity.
‘Having a GAR attached to a policy is a very valuable benefit, and that is why we have become increasingly concerned that growing numbers of policy holders are throwing away that guarantee so that they can access their pension pot instead of buying an annuity. We are therefore testing the appetite of policy holders to see if they would like to be given the option of an uplift in the value of their pension pot as an alternative to their guaranteed annuity rate.’
He added that people who wish to retain their GAR will be able to do so.
‘Those who want to retain their guarantees will, of course, be free to opt to do so. We are already seeing that significant numbers of policy holders are interested in this option. We will continue to work closely with regulators and others throughout this whole process to ensure that members are given a fair deal.’