Standard Life has contacted 25,000 pension annuity customers that have been hit by deflation. These unfortunate customers have inflation-linked pension annuities and they are being told that their incomes may not increase and might even be decreased after the UK’s shift to deflation in April.
The company has said that up to 6,000 customers with inflation-linked pension annuities that have no floor on inflation levels built in will see a decrease in their income levels if inflation remains negative for a full twelve month period. And, those policyholders whose policies are being reviewed while inflation remains negative will be affected by the current deflation.
Those customers whose policies have no floor will see a reduction in their annuity income levels, while those with policies that have an inflation floor written into their annuity contract will not see an increase in their income under these deflationary conditions. If inflation remains negative even if there’s a floor built in, their annuity income won’t increase, commented Standard Life.
For policyholders who are affected by this, the income freeze or reduction will be applied two months after the contract is reviewed, and the company said that based on the current RPI of 0.4% we are witnessing the average annual income of £1,300 will be reduced by £5.20 a year for annuities with no RPI floor.
These index-linked pension annuities have been unpopular with retirees because the cost of providing the income guarantee over time reduces income levels in the earlier years of retirement, and this can be clearly seen if annuity rates are compared with conventional annuities.
