I do not want to bore you with all the various types of annuities available, but needless to say CPIAs and OMOs have been doing a wonderful job for pensioners for many years, especially when purchased in years of high interest rates.
In addition, many pension investors of these arrangements in the recent past and present have benefited from attractive guaranteed annuity rates that are included in many old-style pension contracts.
Since the ‘credit crunch’ we have experienced the most extreme financial conditions and the lowest interest rates for 400 years, so the company actuary has had no option other than to reduce rates on immediate annuities. As for advisers, before the RDR they were usually paid 1 per cent commission on the purchase price, which usually resulted in an hourly rate of between £10 and £100 an hour depending on the size of the purchase price. One client would subsidise another. These days there is no commission for advisers and a fee has to be agreed with each client.
Since the ‘credit crunch’, fixed-term annuities have become much more popular and already offer the facilities that Steve Webb wants from his ‘shopping around’ thought. However, interest rates will rise again in the future and there will be still a place for an immediate annuity.