Pensions  

Pensioners still left out in cold on annuities: FSCP

In a damning five-page report on annuities, the FSCP warned that post-RDR there had been a shift in distribution channels, removing low-cost advice from the high street and “undermining the intentions of the RDR”.

In a damning five-page report on annuities, the FSCP warned that post-RDR there had been a shift in distribution channels, removing low-cost advice from the high street and “undermining the intentions of the RDR”.

The report highlighted a dysfunctional annuity market, leading to potentially negative outcomes for people with lower pension pots who fall into the non-advised sector.

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In addition non-advised services, especially for enhanced annuities, were found to be charging commissions as high as 6 per cent, compared to an average of between 1.5 per cent and 3 per cent.

It found that the higher profit margins for non-advised services meant that consumers with pots worth around £25,000 were invariably drawn to the non-advised model and away from advised annuity sales, which brought with it reduced protection for the consumer.

Sue Lewis, chairman of the FSCP, said the market was currently too complex and failed to deliver good outcomes for many.

In the report FSCP called on the government to provide better protection, greater transparency on costs and commission, and mandatory minimum standards for the non-advised annuity market.

Steve Clark, director of Leicestershire-based advisory firm 44 Financial, said that the “radical” proposals for an “urgent regulatory and government-led structural reform” for annuities were a positive step, but those with small pension pots “could still be priced out of the advice market”.

He added: “Some sort of simplified advice process on the internet could work. However the people that annuities are targeted at are generally not as internet-savvy as younger generations.

“Making advice available for annuitants will be difficult, especially with small pots as in many cases it’s not worth the adviser’s time, especially for someone with less than £20,000.”

Key recommendations:

• Introduce mandatory standards and a code of conduct for the non-advised annuity market.

• Address light-touch regulation and non-transparency of commission.

• Introduce a national default annuities service, along the lines of the National Employment Savings Trust, which would be available to all annuitants, regardless of the size of their pension pot

Industry reactions

Independent pensions consultant Ros Altmann said: “Annuity reform is long overdue and we can’t leave it for the industry to self-regulate. Allowing non-advice services to charge more than full advice cannot be in the customers’ interest.”

John Fox, managing director of pension provider Liberty Sipp, said a high cost would “impose an almost impossible burden on the workforce”. He added that the government needed to make pension saving more accessible.

Background

Data from the Office for National Statistics revealed that total public expenditure on state pensions, including pension credits and the winter fuel payment, was projected to increase from £94bn, 6 per cent of gross domestic product in 2012/2013, to £438bn, 8.4 per cent of GDP by 2062/2063.

Adviser Views

Nick Flynn, divisional director of longevity for national advisory firm LEBC, said: “The proposals do not go far enough. Annuities and retirement advice should be treated in the same way as an Isa, bonds and pensions, and brought in line with RDR. This means no commission, and advice should be provided.”