The MP for Gloucester, speaking at a parliamentary debate on ‘Reform of annuities for pensioners’, said “low standards of conduct” would not only have a detrimental impact on retirement incomes but also reduce the vital incentive to save among future generations.
The debate on 7 January saw MPs propose a wide range of measures to tackle unclear charging, consumer inertia and hidden commission received by annuity brokers, all of which could conspire to diminish the incomes people receive at retirement.
Mr Graham said more availability and awareness of options other than annuities could avert a mis-selling scandal similar to the endowment mortgage problems that had their roots in the 1980s.
He said: “This situation reminds me of the endowment mortgage I felt obliged to buy in the 80s, with the product information appearing to be gobbledegook and high commissions flowing from one insurer to another.
“It seemed you had to have one to buy a house in the 1980s. Are we going to see a repeat of that with annuities? The starting point for annuities should be to ask: ‘Is it going to be useful and helpful to you?’ What are the alternatives?”
He added that new cap drawdown rules and the Association of British Insurers’ new code of conduct for annuities represented “modest steps forward” but were “not enough”.
Also speaking at the debate, Greg McClymont, Opposition pensions minister, repeatedly argued that industry and Treasury efforts to “encourage more consumer engagement” by promoting the open market option will not be enough to drive change in the market.
He said it was “worth thinking about” a point made by David Mowat, MP for Warrington South, who suggested the government should start providing annuities to stimulate competition.
David Gaulke, Exchequer secretary to the Treasury and the government’s representative in the debate, assured fellow MPs that the government would not hesitate to make further legislative changes after the release of the ABI’s evaluation of the annuity code of conduct and the FCA’s probe into the sector.
But he would not be drawn on whether the government would extend a proposed cap on defined contribution pension charges to annuity pricing.
Philip Bray, marketing and relationship manager at Nottingham-based Investment Sense, said: “To me, the main culprits to blame for the annuities mess are non-advised brokers. The Financial Services Consumer Panel rightly highlighted that its practices are not great. I have seen reasonable indicative quotes, assuming the individual has certain illnesses, which then go up once the medical underwriting is done and this rate hike leaves a bad taste in the mouth.”