Widows could end up being left penniless if their husbands do not buy the right pension product and the industry was doing little to help raise awareness, Ros Altmann has claimed.
The independent pensions consultant was speaking in response to a Channel 4 Despatches television programme on Monday. She said many annuity companies were offering terrible rates and potentially pocketing £1bn extra a year by not paying widow’s pensions.
She said the state of annuitants in this country was shocking, adding: “Many men are buying annuities that cover only themselves and not their wife or partner. This is because most men do not understand how annuities work and often assume that their annuity will provide for their wife as well, but this is not the case.
“When they die, the insurer just keeps the balance of their fund rather than paying a pension to the widow. In general wives tend to outlive their husbands by about five years.”
Ms Altmann said this could mean insurers keep an extra £201m a year for five years, more than £1bn of the £13bn of pension funds that are annuitised each year.
She added: “Most people do not understand how annuities work and, despite having saved for decades, they may leave their partner with nothing and possibly at risk of poverty or having to rely on means-tested benefits instead.”
Nick Evans, financial planner for Hertfordshire-based One Life Wealth Planning, said: “This news highlights the importance of taking advice. I don’t see how you can blame the product provider for the choices people make. With annuity rates still low relative to a few years ago, it is no wonder that people are attracted to the highest rate of income, but it is also clear that neglecting the needs of a surviving spouse could be a very costly mistake. ”