:Some insurers had blamed tax rules for failing to pay cost-of-living increases on annuity pension products
Revenue officials have cleared the way for insurance companies to pay thousands of pensioners higher amounts, to take account of inflation.
The move affects those with pension annuities that have a cost-of-living rise built in.
It comes after the Irish Independent exposed how some insurance companies weren’t paying cost-of-living increases for schemes that are supposed to cover rising prices. They were restricting what are known as escalator rates for annuity customers.
They claimed Revenue rules restricted the increases they could pay.
These schemes had been sold to thousands of people as part of their pension plans, to guard against the effects of inflation. Inflation in this country was 7pc in April.
But the move by pension firms to limit “inflation escalator” payments sparked a Revenue probe.
The pension companies were accused of putting the money into their reserves – then keeping it when the pensioners pass away.
It emerged that one woman who was affected lost up to one-third of her pension, due to the cumulative impact of not getting cost-of-living increases for years. The woman, who is in her 80s, was owed significant arrears and is due a rise in her pension payment of up to a third.
A pensions expert argued her case with the Financial Services Ombudsman – and she has now received the money. She got her full annual 5pc increases, going back a number of years, from the life company, which conceded before the Ombudsman made a decision.
The issue relates to people who bought what is known as an annuity when they reached retirement age, after paying into an employer pension scheme. A pension annuity is a fixed sum paid to someone each year, typically for the rest of their life.
The affected people opted to buy an annuity with a fixed cost-of-living increase, sometimes called an escalator. This often made the annuity more expensive.
Pension providers deny withholding any money. They argue that strict tax rules imposed by Revenue had prohibited them from paying out cost-of-living increases, or in some cases, claimed they could only pay a fraction.
Revenue has now clamped down on pension providers restricting the amount of escalator payments they make.
It said: “We were not in agreement with the interpretation taken on this matter by some pension practitioners.”
Asked for a comment, Insurance Ireland said there are a number of different structures in annuities where different forms of escalation in payment form part of the contract.
“Our understanding is that where the contract provides for escalation in payment of annuities, this is generally being delivered by insurers in line with the revised Revenue guidelines,” the lobby group for insurers said.
Irish Life said following the changes made by the Revenue to its guidance, it moved to clarify this matter.
“Irish Life then undertook an extensive project to review product and customer literature for all customers potentially impacted.
“We found a small number of customers were affected and we revised their payments to make sure they were in line with the updated guidance.”
New Ireland said it never had any restriction on escalation rates for any annuity customers, so it’s not applicable.
Zurich said all policyholders receive, in full, the escalation rate which they chose on their contract.
Aviva said it fully complies with Revenue rules in relation to annuities, including the most recent amendment announced in 2020.