THOUSANDS of pension savers stuck in funds that eked out a paltry 2% return last year are being asked to give up valuable guarantees with the promise of higher investment returns.

Pearl Assurance has written to 50,000 Phoenix & London Assurance with-profits pension policyholders to ask them to give up “guaranteed annuity rates”.

Annuity rates have almost halved since 1990, so these guarantees are hugely expensive for the company to uphold.

Phoenix & London Assurance guarantees an annuity of 10% for a man aged 65 compared with just 7.8% available on the open market. Its with-profits pension policies maturing in 2015 made just over 2% in 2007. That means they lost money in real terms: inflation is now running at 5%.

Pearl said savers would get a one-off increase, be able to move their money without penalty and potentially greater returns in a switch from bonds to shares.

The proposed changes will not affect anyone retiring before January 2020, and Tom McPhail at adviser Hargreaves Lansdown said they could prove fruitful.

“The longer your investment term the more likely it is that equities will outperform fixed-interest schemes,” he said.

Policyholders will have until the end of this month to decide.

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