Opinion  

High time for the government to act on annuities

Tony Hazell

Tony Hazell

A wish for 2014: let us finally resolve the annuity farce.

It beggars belief that all the brains in the financial world cannot come up with a better and fairer way of providing a retirement income.

Insurers have been allowed to get away with deceiving the public for far too long.

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Many people dismiss annuities as dull or incomprehensible. And those with the power to force change – that is, MPs – have no personal interest in delving into the issues because they enjoy final salary pensions subsidised by taxpayers. So the general public has endured a sustained rapacious attack on its savings.

The Financial Services Consumer Panel’s devastating report at the tail end of last year helped to expose just how badly investors are being cheated, referring to possible “exploitative” pricing.

Consumers have been let down by legislators, regulators and the industry.

My other home, Money Mail, published several reports last year exposing unhealthy industry practice. These were based largely on ‘deep throat’ industry sources who are sickened by the behaviour of their own employers.

Obscure charges, complexity and misinformation force most pensioners to take a one-off gamble that will affect the rest of their lives. As with most gambles, the house (in this case the insurer) usually wins in the end. Even with increasing life expectancy, the chances of getting value from an annuity, compared with other forms of income-generating investment, are remote.

Annuities are a hopeless product sold in a dysfunctional market. Manufacturers and the middle men wield all the power.

It cannot be acceptable that some can, for a few hours’ work, take 5 per cent of money accumulated over 30 or 40 years. Some solutions are obvious. Trivial commutation of smaller pensions must be made simpler and opened to all pensions of less than £20,000.

Drawdown also needs to be simpler; those using it as a cash cow – you know who you are – must make it cheaper and more accessible.

But more than anything else the government must take a hand. A high-level body needs to be set up involving all involved interested parties – including consumer representatives – to investigate the whole area of pension decumulation. And its recommendations – no matter how unpalatable to Treasury or industry – must be acted on.

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Forget the good old days

Here is an aim for you in 2014: look forward and learn to live with the world as it is.

Because the prevailing negative attitude of some IFAs is putting people off seeking financial advice.

Throughout the past couple of years there has been constant moaning and harping from some quarters about how expensive financial advice is and how ordinary people cannot afford it. Instead of focusing on the quality of advice, the focus has been on the cost. And that focus is scaring consumers off just when they need help most.