Pension annuity betrayal that left disabled widow Dawn a prisoner in her own home

Three years ago, Dawn Smith fell down the stairs at home and was left disabled. Due to osteoporosis, the 73-year-old widow shattered bones in her feet, ankles and legs, and spent six months in a wheelchair.

She now walks with a stick and is confined to the ground floor of her three-bedroom London home, where she’s turned the living room into a makeshift bedroom.

Dawn is desperate to use her pension for urgent home renovations that would mean she no longer has to sleep on a reclining chair, or rely on her daughter to help her wash by the sink.

But like millions of retirees, her life savings are locked into a pension annuity that she cannot access.

Hopes dashed: Dawn Smith, pictured with daughter Tracey, fell down the stairs at her London home shattering bones in her feet, ankles and legs

Her only option is to keep collecting her £113.53 monthly income — the guaranteed lifetime payout from the £29,000 annuity that she and her late husband David purchased with their life savings before he died of cancer in 2009.

Dawn has had her hopes of cashing in her annuity raised and dashed twice, in what her family describe as a ‘double betrayal’.

Two years ago, the Treasury announced that savers would be able sell back annuities to insurance companies from April 2017.

But the plans were shelved in October last year, causing crushing disappointment for pensioners such as Dawn, who felt a cash lump sum would be so much more valuable than a small monthly income for life.

Dawn then pleaded with her pension firm, Aviva, to let her cash in her annuity pot — which she was told is worth £17,913 — to carry out the renovations. It refused, but instead offered her two years’ annuity income upfront, or £4,105, in lieu of the £113 monthly instalments.

The proposition, seen by Money Mail, was the first known offer of its kind.

But several weeks later, Aviva pulled the deal, saying it should never have been offered because it breached tax rules and its own company rules.

Aviva told Money Mail: ‘This offer was made in error, and we are looking into the circumstances surrounding this.’

It has now offered her £500 for the ‘inconvenience’ she suffered.

Dawn’s case shows exactly why Money Mail’s Unlock Our Pensions campaign is calling on pension firms, the Government and City regulators to find a way to help savers stuck with annuity contracts they don’t want.

In 2015, the Government scrapped a rule that effectively forced most over-55s with stock market-linked pension savings to buy annuities on retirement.

But the same freedom to spend your life savings as you want was not afforded to the five million people who had already locked in to lifetime annuity deals.

Dawn, of West London, says she is now at a loss as to how she can fund the repairs to her home.

Describing her treatment as ‘disgusting’, she says: ‘Being able to cash in even £10,000 of my annuity would make a great deal of difference to my life.

‘There should be an exception to the rules if you suddenly need the money for medical reasons.’

Dawn’s daughter Tracey Smith, 43, who lives with her mother and her eight-year-old daughter so she can care for Dawn full-time, says: ‘This has been very stressful for my mum. First she was let down by the Government, and now this.’

Dawn and David took out a joint annuity policy, which pays out to a spouse on death, using their entire life savings of £29,000 in 2003. David was diagnosed with bladder cancer in 2006, a year after retiring as a lorry driver, and died in 2009 aged 65.

Dawn with her late husband Michael in May 2015 on their ruby wedding anniversary. They took out a joint annuity policy, which pays out to a spouse on death, using their entire life savings

When the Government announced plans to let savers cash in, Dawn had hoped to use the pension to fund a £5,000 walk-in bath and a £40,000 house extension with a downstairs bedroom and bathroom.

‘My husband never would have taken out an annuity if he had known we could never get it out if we needed it,’ she says.

Ministers claimed that letting pensioners sell their incomes for lump sums would put them at risk of poor-value payouts.

Writing to Dawn, Aviva warns it could cause ‘financial detriment to customers’ and would not be in their ‘best interests’.

But Dawn says: ‘I feel patronised by the suggestion that I cannot handle my own money.’

Aviva said tax rules prevent it from offering two years’ worth of payments upfront.

Its earlier letter to Dawn had said: ‘Due to your extenuating circumstances, [we] wanted to do something to help, especially as your council is not willing to pay for the home adaptations.

‘The result of our meetings with other managers is that they have agreed to offer you a lump sum of two years’ worth of payments. This would mean you would not receive payments for two years.’

However, Aviva later referred Money Mail to HMRC’s Pension Tax Manual, which states that an annuity contract must ‘be paid at least once a year, whether in advance or in arrears’.

Aviva accepts that it could offer one year of payouts to Dawn up front, but is not willing to do so.

As well as the £500 gesture, it has offered to pay the costs of independent financial advice to help her find a solution.

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