Questions of Cash: July 2015

Posted on August 4, 2015 · Posted in The Independent

Q.  I took out a with-profits pension annuity with Equitable Life.  In 2003/2004 I received monthly payments of £124.71.   My annuity was transferred to Prudential in 2007, since when my income has fallen each year and in 2015/16 it is £69.22 per month. MB, Leominster.

A.  This is in part a result of the financial crisis that hit the very badly managed Equitable Life in 2000, but Prudential says it is also the result of your choice to take a higher payment in early years, at the expense of later years’ payments.  A spokesman for Prudential explains: “When Prudential rescued the Equitable Life scheme, the policy choices made by Equitable Life customers continued to apply.  There are several factors that affect the level of income in annuity policies such as this one.  Fund performance, a guaranteed interest rate (GIR) if applicable, the regular bonuses declared and the anticipated bonus rate (ABR).  Customers were able to choose a high ABR when taking out the policy if they wanted to essentially ‘frontload’ the level of income they got from their annuity. This was a popular option when some customers believed they would spend more money at the beginning of their retirement.  A higher ABR increases a customer’s starting income, but will reduce the prospect for future growth over the long term and therefore increase the likelihood of the annual income reducing.”  We asked Tom McPhail, head of pensions research at advisers Hargreaves Lansdown, what options you have.  He said: “Unfortunately there is very little that can be done. The Prudential’s line of argument all looks right; your correspondent is paying the price of Equitable Life’s former management’s over-optimism and the impact of more recent adverse market conditions. Prudential’s with-profits fund performance has generally been better than most in this sector – unfortunately none of them have been able to defy gravity.  The only hope is that in keeping with the new pension freedoms and the forthcoming market in secondary annuities, perhaps the Prudential will relent and allow the investor to either cash in or transfer their pension elsewhere.”

Q. I closed my account with Npower in January when I moved to my mum’s to recover from major surgery.  A friend moved into my house and took over the bills. But Npower mixed up my identity with another customer who has nothing to do with me. The company sent my details to a debt collector without contacting me to ask for any money.  My final bill was settled in January.  Npower has prevented me from obtaining a mortgage due to the damage they caused my credit score.  AW, Lancashire.

A. This situation has caused you much stress when you needed to recuperate.  It has taken us weeks to resolve.  We initially contacted Npower.  It denies responsibility for the rejection of your mortgage application – which was to take out a buy-to-let mortgage in place of your residential mortgage.  A spokesman for Npower explains: “She switched away from Npower in January this year and we promptly sent her a final bill, along with a refund for £70.  [The reader] then made an indemnity claim at her bank for January’s direct debit payment (£61) to be returned to her – this put the account back into debt.  While we cannot say for certain why an incorrect forwarding address was added to the account, we believe the advisor who spoke to [the reader] misheard her on the phone call and subsequently entered an incorrect postcode. [With regard to] her credit file, we did report that a balance of £61 was owed but we’re struggling to see how such a small amount would affect her mortgage application… if indeed we are at fault we will be more than happy to reimburse her for any charges.”  Npower agreed to clear your account as a gesture of goodwill.  But debt collectors again contacted you on behalf of Npower a few days later.  At our request, Npower then sent you a letter of apology.  This explained that the account had been sent to a debt collection agency for the second time just before it had been agreed to clear the debt.

While this resolved the issue of the debt to Npower, there was still the issue of the mortgage rejection.  We asked Experian to examine your credit file.  Its spokeswoman responded:  “As to what could trigger a negative view of a person’s credit worthiness – ultimately each lender decides this for themselves as they have unique scoring systems that look at the applicant’s credit history as evidenced in their credit report, the information provided on the application form which may include income, employment status, etc, any records they may have with that customer already and also their own lending policy for the product in question.  Therefore, only the lender in question will be able to confirm why an application has been rejected – but they are required to provide the principal reason why if the customer asks.”  Experian confirmed that Npower connected your credit record with that of another person with the same name and date of birth, but at another address.

We then contacted the mortgage lender who rejected your application to determine if this mix-up of credit records and the Npower debt were the reasons for the mortgage rejection.  Your application went to Godiva, which is part of the Coventry Building Society.  Coventry declined to advise us of the reason for its decision, saying it could only provide that information directly to the applicant.  It did say, though, that the Npower bill was not a factor.  Coventry then explained to you its reason was that “We do not allow applicants to remortgage their current residential property onto a buy to let mortgage.”  You tell us that you made the application through a mortgage broker.  We would expect a broker to know which lenders have this restriction and not to apply on your behalf to a lender whose rules would obviously prevent it agreeing the application.