Julian Knight: It's time for some real competition in annuity offers
Sunday 02 October 2011
Imagine you're about to retire and are one of the minority who has regularly saved into a private pension.
You get a letter telling you how much your pot is worth and what size annuity this will buy you. All you have to do to get this income right away is tick a box and return it in the pre-paid envelope. Nothing could be easier – but nothing could be potentially more costly.
In most cases accepting the annuity offered by your insurer is a mistake which over the course of your retirement could cost tens of thousands of pounds. One of the most common mistakes is to not realise that you may have a medical condition which could be considered life limiting, and this could afford you an enhanced annuity, more money in other words.
Most people accept the annuity offered by their insurer and for decades the insurance industry has been very happy for you to make such an error.
Now the Association of British Insurers has launched a compulsory code of conduct over the sale of annuities. In future insurers will no longer be able to include an application from for an annuity in the letter telling pension savers how much their pot is worth. The ABI says this will make "a significant difference to people's retirement outcomes".
I doubt it. This is little more than a fudge. Providers will still be able to quote for an annuity and remain free to frame the letter so that savers will be steered towards converting their pension pot into an annuity with the same provider. I don't expect more people to actively shop around due to this measure.
What we need to see is a complete shift in emphasis so that it is easier to shop around than it is to stay with your pension provider and thus permit real competition in the market.
At present some pension providers can rely on a good number of their savers staying with them and annuitising. This means they don't have to offer competitive annuity rates.
Why not simply ban insurers from annuitising their own customers? If everyone got the maximum they could from their retirement pot it would save the country huge sums on means tested benefits and bring in millions in extra tax revenues.
Bye-bye to forced retirement
From this weekend you can no longer be legally fired just because you reach the age of 65. This basic right has been a long time coming. It's been five years since the Labour government introduced anti-discrimination legislation which banned certain ageist hiring and firing practices while bizarrely keeping forced retirement at 65.
But anti-age discrimination campaigners – rightly – don't think this is a case of mission accomplished. Discrimination is rife and insidious. Even those considering themselves liberal minded and accepting of difference still fall into ageist language and subliminal habits they would not tolerate on issues of race or gender. A cultural transformation is needed.
An idea to tax our patience
They got us into this mess so they can get us out of it. So goes the attitude of the EU's José Manuel Barroso towards the banks. Therefore Mr Barroso says we need a transaction tax on every financial trade in the EU – ergo the City of London – in order to raise an estimated €50bn to sink into the black hole of Greece and the other Club Med basket cases. It's one of the biggest red herrings in history.
First, the banks are not responsible for Greece, Ireland, Portugal, Spain or Italy. The only people responsible for the mess are their own governments and populations both of which have borrowed too much money and, in Greece's case, even cooked the books.
Second, the present crisis is a reflection of Greece being a failed state, corrupt and living in la-la land mixed with a wider failure of Europe's political class. All a financial transaction tax will do is drive trades to Hong Kong or New York and cost Britain tens of thousands of highly paid jobs and billions in corporation tax. As a result, the billions of euros in tax would never materialise. It would be utterly self defeating.
The Swedes just tried such a tax and found that their tiny market disappeared almost overnight. It really is time that politicians stopped blaming the banks and looked in the mirror.
Fine the directors of bad banks
One thing we can blame the banks for is their appalling customer service record. While the latest figures from the Financial Services Authority on complaints are slightly skewed by the fallout from the payment protection insurance scandal, the level of unhappiness is still breathtaking. Ten thousand complaints a day are received. Barclays is the worst offender with 250,000 complaints in just six months.
The FSA tactic of simply releasing complaints data is making little or no difference to standards of customer service in this country. We need a little more proactive regulation in this sector, perhaps involving some personal fines of directors of banks which are letting down their customers on a consistent basis.
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