At that time financial advisers and product providers refused to admit there was a problem because they were making so much money from the status quo.
Financial advisers can pick up a commission from an annuity sale on a pension they sold decades ago, even if they do nothing.
Many firms make staggering profit margins by selling annuities. Published ones are around 18 per cent but some are believed to be much higher.
Legal & General recently reported higher profits from annuity sales and it is consistently one of the top payers. Just consider what others are making.
Ros Altmann, formerly a pension adviser to Tony Blair, says this is the biggest financial gamble someone will take in their lives.
Annuities are still seen as the default option for providing a retirement income. But every time you as a financial adviser recommend one or someone buys one, you and they are taking a stab in the dark.
Neither of you knows how long they will live. You do not know what inflation will be. You do not know whether they will outlive their spouse. At best you can hazard a guess and hope.
What you do know for sure is that current pricing means the odds are stacked heavily in favour of the insurance company.
A 65 year old buying an annuity would need to live to be 90 to get decent value from it, Ms Altmann has calculated.
Yet the average 65-year-old man can expect to live to less than 87, according to estimates by the department for work and pensions.
The pay-out odds are similar to those offered by slot machines at casinos in Las Vegas. Yet anyone who pumped all their pension into one of those would be condemned as barking mad.
Politicians seem content to do nothing. I suspect this is because 99.99 per cent of MPs have made no effort to understand them because they will not have to buy one themselves.
The FCA’s review has already highlighted an overwhelming desire among consumer groups for changes, such as compulsory shopping around and better consumer information.
The same research highlights the desire of some in the industry to maintain the status quo.
At the end of the day I wonder whether this is an area the Office of Fair Trading should take a look at.
Because this is a market that is working against the consumer where the profits are high, the charges are hidden and reform is desperately needed.
The pay-out odds on annuities are similar to those offered by slot machines at Las Vegas casinos____________________________________________________________________________
Living for today, not tomorrow
When discussing our financial plans and prospects we can tend to be a trifle optimistic. But some people, it seems, live in cloud cuckoo land.
The Money Advice Service recently published a study into the money habits and potential behaviour of the nation. It surveyed more than 5000 people and followed more than 70 families closely for a year.
This revealed a curious pattern of “do as I say, not as I do”.
For instance, nearly two-thirds said it was a good idea to save money for a rainy day.
But only 44 per cent have saved more than three months of income, or about £8000 based on figures from the Office for National Statistics .
And only 58 per cent could cover a £300 unexpected bill.
While more than half felt that a pension was the best way to save for retirement, only 28 per cent of those surveyed were actually saving into one.
More worrying is that in the past seven years when the last survey was conducted, many people’s money management skills appear to have deteriorated.
There may be many reasons for this: lack of personal responsibility, relatively easy credit, the rise of payday loan firms, inexorably rising bills and flat wages.
But I suspect the core problem is that many people still refuse to rein in their ambitions to reflect the more straitened times in which we live.
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Benefit of shares Isa
While rooting around I discovered some fascinating research by HM Revenue & Customs on Isas.
I particularly liked a graphic that illustrated the amounts put into cash Isas as opposed to shares Isas.
With the exception of the first couple of years in 1999/2000 and 2000/2001, investors have consistently put far more into cash.
In some years cash contributions were three times the total put into shares.
Yet of the total amount held in Isas – £391bn at the end of the 2012 tax year – the cash and shares are roughly equal.
If ever you wanted an illustration of the long-term benefits of investing in shares over cash, this is it.
Tony Hazell writes for the Daily Mail’s Money Mail section. He can be contacted on t.hazell@gmail.com
