Insurance companies never fail to astound me, in particular, the devious ways in which they can present information, creating better outcomes for them than their customers.
Consider the ways that life companies talk about that rarest of things, the guaranteed annuity rate. Once offered as a sweetener on some early pension contracts, providers now quake in their boots at the prospect of actually honouring these guarantees.
We have been doing some pre-retirement work for clients and reviewing contracts from several providers. Both the Aviva and Friends Provident contracts we reviewed came with guaranteed annuity rates, yet the way they packaged them was remarkably different.
Aviva did not think the guarantee was worth mentioning until the penultimate page of a six-page options letter. The letter opens with a section about buying an annuity, quickly followed by several references in bold type explaining the open market option. More pages follow, outlining different annuity types, including impaired annuities.
Finally, there is a paragraph about guaranteed annuity rates. This is compounded by not indicating what the guaranteed rates are. Anyone going online to compare rates may only end up comparing normal rates.
Friends Provident is more up front about the guarantee, although the first two pages of its options letter are all about transfer values. The guarantee is a with-profits fund. By way of comparison, Friends offers last year’s terminal value and this year’s terminal value, a difference of 11 per cent. Is this designed to encourage a transfer?
Friends redeems itself on page three, which is devote to its guaranteed annuity rates. Without ambiguity, the first line states: “This policy has guaranteed annuity rates which are more favourable than our current rates.”
Well done Friends, no smoke and mirrors in that sentence.
Then it goes on to give the rates. Brilliant. Apart from one thing – it has set out the data to suggest a single-life level annuity is better than an annuity with a dependant’s pension, making a single-life level annuity appear better than it is.
I know the rates are better, but by giving rates annually in arrears for single-life annuities and monthly in arrears for joint-life annuities, it steers policyholders into choosing single-life annuities.
This goes against the spirit of these companies’ commitments under the ABI’s customer impact scheme. Unfortunately, details of the scheme are in the members-only pages of the ABI website.
Dennis Hall is managing director of Yellowtail Financial Planning