Annuity row? Is that a rediscovered classic by John Steinbeck? Sadly no. It’s an argument kicked-off by pensions minister Steve Webb who this week published proposals for reform of the annuity market which are now being considered by the Government.
What has Mr Webb proposed? In simple terms he suggested that pensioners should be given the power to switch annuities after they’ve taken them out, in the same way that people can switch mortgages.
That sounds very sensible. So who is arguing against that? Forcing annuity providers to allow transfers would mess up the way they calculate payouts, warned Alan Higham of Annuity Direct. The net result could be a 25 per cent fall in rates as the alternative, exit charges wouldn’t be acceptable to consumers.
So the pensions industry is suggesting that Mr Webb’s proposals are unworkable. What’s their solution? The problem with annuities is that many people simply take the deal offered by their pension company when they could get much higher payouts elsewhere. So people need to be educated about any alternatives. “The solutions are there – we simply need to make it easier for people,” said Tom McPhail, chairman of lobby group the Pensions Income Choice Association (PICA).
Is there anything new being done in order to help? On Monday a new directory of pension advisers is being launched at www.Pick-A.org. It’s been set up by PICA to help put people approaching retirement in touch with advisers who may help them get a better pension income. “It’s been designed to help people understand their options and find the help they need at the right price,” said Mr McPhail. It’s a step in the right direction, but more needs to be done to ensure we all get a fair deal when arranging a retirement income.