Questions of Cash: All you need to know about Equitable Life

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Q: I took out a with-profits pension annuity with Equitable Life. In 2003-004 I received monthly payments of £124.71. My annuity was transferred to Prudential in 2007, since when my income has fallen each year. 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 the early years, at the expense of later years’ payments.

A spokesman for the insurer explains: “When Prudential rescued the Equitable Life scheme, the policy choices made by Equitable customers continued to apply. Several factors that affect the level of income in annuity policies such as this one: fund performance, a guaranteed interest rate 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 ‘front-load’ 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 starting income, but will reduce the prospect for future growth over the long term and so increase the likelihood of the annual income reducing.”

We asked Tom McPhail at the adviser 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 for the over-optimism of Equitable Life’s former management and the impact of more recent adverse market conditions. Prudential’s with-profits fund performance has generally been better than most in this sector, but 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 allow the investor either to cash in or transfer their pension elsewhere.”

Q: I closed my account with npower in January when I moved to my mum’s home to recover from major surgery. But npower mixed up my identity with that of another customer who has nothing to do with me. It 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 obtaining a mortgage due to the damage it caused my credit score. AW, Lancashire

A: This situation has caused you a great deal of stress when you needed to recuperate. It has taken us weeks to resolve a issue.

Npower denies responsibility for the rejection of your mortgage application – which was to take out a buy-to-let loan in place of your residential mortgage.

A spokesman for the company 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 adviser who spoke to [the reader] misheard her on the phone 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 sum 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 the company 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 again just before it had been agreed to clear the debt.

However, there was still the issue of the mortgage rejection. The credit-reference agency 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 that turned your application down, to determine whether this mix-up of credit records and the npower debt was the reason for the rejection.

Your application went to Godiva Mortgages, which is part of 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 its reasoning to you, saying: “We do not allow applicants to remortgage their current residential property on to 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 to the application.