The High Court has approved Royal London’s plan to allow customers with guaranteed annuity rates (GARs) to convert their guarantees into a top-up for their pension pot.
In April, the provider announced plans to offer an “actuarially fair exchange” for GARs in a bid to stop policyholders throwing away the value of the guarantees – noting Financial Conduct Authority (FCA) estimates showed that three in five GAR policyholders had surrendered guarantees to access pension freedom since April 2015.
The provider will now give these policyholders the option of exchanging the guaranteed annuity rates attached to these policies for a substantial cash uplift.
While most uplifts are expected to be in the 40% to 80% range, the amount will depend on the terms of the individual policy and when it was taken out.
But it said people who want to retain their guarantee will be able to.
Royal London added that a range of consumer safeguards have been in place throughout the process – such as the appointment of an independent actuary to oversee the calculations and an initial round of contacts with affected policyholders to test appetite for the process.
Royal London director of policy Steve Webb said the High Court’s decision was a welcome step forward in the process of looking after former Scottish Life customers, who held these products.
“We have been increasingly concerned to see the proportion of them throwing away these valuable guarantees since the introduction of pension freedoms,” he said.
“With the uplift that we are offering, customers will be able to retain the value of the guarantees attached to their policies while 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 plan has gained High Court approval, affected policyholders will receive individual letters letting them know the amount by which their pension fund could be increased.
A free guidance line is also being set up to answer policyholder’s questions about the process and the provider will also contribute towards costs of financial advice to help people choose the option that is right for them.
Those who do not choose to keep their guaranteed annuity rate will be able to vote on these proposals before a final court hearing in November to sign off the process. Affected policies will be uplifted in December.