The current pensions system is failing the consumer, experts warned this week.
A report from the Financial Services Consumer Panel suggested millions of older people lose out because of the excessive profits, poor value, consumer detriment and sharp practices of life insurers which sell annuities.
“More than 1,000 people a day are buying annuities and risk getting very poor value pensions, which they will be stuck with for the rest of their life, said Ros Altmann, a former pensioners adviser to the Treasury. “As we are automatically enrolling millions more people into workplace pension schemes, it is essential to ensure good-value pensions at the end of the process.”
The £12bn annuity industry has come under repeated criticism this year. In January the City watchdog, the Financial Services Authority, launched an in-depth review to examine the detriment faced by consumers who do not shop around for an annuity.
In March the Association of British Insurers – which represents the big life cover and pension giants – agreed new rules that force providers to issue an information pack to customers before offering them an annuity.
But the argument rumbles on. Nick Flynn, longevity expert at LEBC Group,said: “Annuities and retirement advice should be treated in the same way as Isas (individual savings accounts), bonds, pensions, etc. This means no commission and advice should be provided.”
The key problem is that many people, through inertia, lack of understanding or not knowing how or where to get information and advice, buy an annuity from their existing pension company.
Tom McPhail, pensions chief at Hargreaves Lansdown, said: “It is absolutely vital that shopping around at retirement, both for the right kind of retirement income and then for the best rate, should be the default for everyone.”
David Barral, chief executive officer at Aviva, said: “There are some providers where it appears that because they have supported their existing pension-saving customers over a number of years, feel they have the right to exploit this relationship by offering very poor annuity rates at the point of retirement.
“If they don’t shop around customers will be completely unaware that the rates being offered by their pension provider are uncompetitive compared to the open market,” he added.