Phoenix offers less cash than annuity expected to pay out

Phoenix Group is offering customers receiving small annuity payments the option to trade their regular income for a one-off taxable lump sum paying less than they could expect to receive if they keep it.

The closed-book life provider is offering 65-year-olds with an income of £100 a year between £1,650 and £1,890 to surrender their policies. Latest ONS statistics show a 65-year-old female can expect to live for a further 20.9 years, while a male of the same age can expect a further 18.5 years. A 50 per cent joint life annuity for a 65-year-old with 3 per cent indexation would be priced at a multiple of 31.4 times the income value, according to Hargreaves Lansdown’s best buy tables.

The offer is available to some Phoenix Life customers aged between 55 and 85 with an annuity in payment not exceeding £300 a year, provided that the calculated value does not exceed £2,000 and which commenced before the freedoms were introduced in April 2015.

WHAT PHOENIX WILL PAY*

Age

Annual Annuity

Offer Amount

Years

65

99.68

1889.62

18

70

100.48

1501.75

14

65

99.48

1764.63

17

70

100.56

1479.27

14

70

100.28

1493.45

14

65

100.56

1669.24

16

70

100.50

1501.97

14

60

89.28

1947.57

21

60

90.12

1985.31

22 

This announcement replicates a similar exercise carried out by Phoenix in 2013. The provider is making the offer under existing ‘small pot’ legislation.

Phoenix will start to offer the option to a group of eligible customers from November 2017.  Phoenix says payouts ‘will reflect all the potential future benefits that might be expected under the policy’. Customers will be able to opt for this through a single claim form and will have six weeks to consider whether to take up the offer.

Each customer will receive a personal outline of the amount they could receive and the tax implications of acceptance. Phoenix is also recommending policyholders speak to TPAS if they are unsure of what to do next, or to seek independent financial advice.

Phoenix head of retirement propositions Danny Dowd says: “We recognise that many of our customers have annuities which provide very small regular income payments.  This scheme offers them a choice which they will unlikely have had before – to take a one-off lump sum now or continue to receive their annuity payments.

“Offering customers the option of taking a one-off lump sum is a win-win situation. It offers customers a greater degree of control, but also enables us to free up resources that go into administrating small annuities.

“The offer amount is aligned to our reserving / Best Estimate of the Liability for the assumed future income stream. This method takes account of built-in escalation, guarantee periods and spouse/ dependant benefits.”

*Indicative figures only – can vary depending on escalation, spouse benefit, payment frequency