Incredible shrinking funds
MORE than 170,000 teachers have seen their pension top-up funds slump by up to 13 per cent in the past year.
The revelation is a further blow to teachers who learned last week that the Government intends to increase their retirement age from 60 to 65. And it is likely to trigger compensation claims from teachers who believe they were badly advised to join the in-house additional voluntary contributions scheme run by the Prudential.
Those who retired and cashed in their AVCs shortly after the Pru cut payouts on March 15 have found that their pension funds have shrunk by at least 5 per cent. Dr Patricia Moore, who taught at Bodmin community college before retiring last Christmas, saw her fund plummet from pound;47,280 on January 28 to pound;41,047 on March 18. She reckons she will now be several hundred pounds a year worse off, because she had less money to buy an annuity. Dr Moore has asked the Financial Services Authority, the pensions watchdog, to investigate her case.
Only two of the 10 other main pension providers have outperformed the Pru over the past decade. But the National Association of Head Teachers says some of its members are seeking compensation for mis-selling.
John White, a partner with RSM Robson Rhodes, a Manchester actuarial firm, says that advisers have not always explained the risks of AVC schemes based on the stock market. "Advisers tend to use phrases like 'guaranteed returns' or 'it can't go down', ignoring the fact that bonuses can be slashed," said Mr White.
Mike Beard, head of pensions at the NAHT, believes that teachers do not look closely enough at alternatives such as "past added years".
These can be more expensive than AVCs, but the benefits are guaranteed.
They include index-linking and pensions for spouses and dependants.
Dr Moore's AVC fund fell victim to the Pru's reduction of final bonuses - the extra sum paid out when AVCs are cashed in - because she was unable to finalise her annuity before March 15. She missed the crucial deadline because of a family bereavement and the illness of her financial adviser.
Dr Moore says the Pru did not warn her that waiting until after March 14 would result in a drastic cut to her pension. "It does seem very wrong that people like me, who have taken care to plan future provision for ourselves, should be penalised for having done so," she said.
The Pru says it did not categorically inform teachers purchasing annuities in February and March that bonus rates were about to fall because, "we cannot predict the impact on each individual".