Where has my £65,000 pension gone, L&G?

L&G finally told us — a year after the £65,000 was transferred — that it disagreed on the regulations pertaining to the pension, and that according to L&G there was a shortfall of £23,987 needed to supply the GMP.

L&G said: “Countrywide has categorically refused to pay the above uplift as it says it cannot be liable for any benefits outside its pricing calculations. Legal and General is not in a position to accept the liability for this, as this must lie with the original scheme.

“We’re entering the territory of this being an ‘underfunded GMP’, which we cannot accept. We will be returning the £65,246 to Countrywide and cancelling the case. Please accept my sincere apologies for this, and for the time it has taken to reach this conclusion.”

So the issue is regarding the GMP. Under pension regulations, GMPs must provide certain benefits including indexation and spouse pension. Countrywide states that under the regulations of 1987, it is not obliged to provide these benefits, and has therefore only transferred sufficient money to L&G to fund a “level” annuity with no spouse benefit. My financial adviser believes that any other annuity firm would respond in the same way as L&G.

If true, this means I have a “guaranteed minimum pension” I can never actually have access to. If you could help me get to the bottom of this, and how I can actually get my annuity of £4,000, I would be hugely grateful.

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Jill replies

Financial services is riddled with jargon, and your entire problem has been caused by the use of the words “guaranteed minimum pension” to describe something slightly different to the normal terminology.

Like L&G and your adviser, I equate guaranteed minimum pensions with the benefits provided to those who were members of final salary pension schemes and who were contracted out of the additional state pension between 1978 and 1997. As you explain, this type of GMP provides fixed benefits including indexation (inflation linked increases up to a maximum of 3 per cent a year on pension accrued after April 6, 1988) and a spouse’s pension if you die.

You are married but your wife has her own pension, and after waiting more than a year for your pension income you were not fussed about indexation. You weren’t worried about these extra benefits, you just wanted your pension to start paying out.

You wrote to me in February but a few days later you told me that Countrywide believed L&G had misunderstood the product (easily done!) and that it would contact L&G to explain the situation. I thought you were well on course to getting your annuity sorted out, so I backed off. Then in June you told me that Countrywide hadn’t spoken to L&G, and you still didn’t have your annuity. You also believed that Countrywide had refused to give L&G its bank details to refund your money and that this was now in limbo.

I asked L&G and Countrywide to explain themselves and to find out where your money was. L&G responded first, saying that it had initially been confused by your adviser, who requested an annuity quote for what she believed was a normal GMP as I described. While L&G now understood that your pension did not need to produce the same benefits as a GMP derived from contracting out of the additional state pension, it was still unable to sell you an annuity: “Legal & General only produces GMP quotes based on GMP options in line with current regulations. So, as this type isn’t covered by us, we can’t facilitate it. The adviser should have been familiar with these rules. We should, however, have identified earlier that we couldn’t facilitate Mr P’s GMP. As such, we paid Mr P £750 to apologise for this.”

It said it had returned your £65,000 to Countrywide, and as the payment hadn’t bounced back, that was where it believed the money was.

Countrywide confirmed that your pension was an S226 contract, a scheme used by the self-employed in the past and which had nothing to do with contracted-out final salary schemes. However, it did guarantee to provide sufficient funds for you to buy an annuity which produced a minimum of £4,000 a year — with no inflation link and no widow’s pension — hence the description “guaranteed minimum pension”. You should be able to use your £65,000 to buy a bog-standard level annuity from any firm on the open market.

Countrywide’s chief operating officer called me to confirm that your money was indeed back with the firm. She also told me that your pension plan had been much too small to produce an annuity income of £4,000 a year, so Countrywide had already topped it up by £31,500. Countrywide also paid you £500 compensation for its part in the upset you have suffered.

Finally, after a couple more weeks, L&G agreed that it could provide…