You can hardly turn on the TV or pick up a paper without being bombarded with stories about the woes of the annuity market.
Last week, there was a lot of coverage about the effect of quantitative easing on annuity rates pointing out that annuities were at an all-time low and pensioners are paying the price for the banking crises and the European debt crisis. The other big news story was the report from the NAPF with the headline ‘Savers left short-changed and bewildered by unfair annuities system’ which culminated in the sensational headline in Monday’s Daily Express, Pensions slashed in £3bn ’rip-off’.
As a seasoned observer of the annuity market I am always interested in what is fact and what is fiction. Where I see articles that unfairly put the boot into annuities using incorrect facts and information I am left wondering who is going to stand up for annuities?
It is a fact that annuity rates are at an all-time low but that is not the fault of annuities, it is the fault of low yields on gilts and corporate bonds. However it is simply wrong to say that the annuity is a ‘Rip off’ or as another headline put it, ‘annuity market is facing collapse’.
I know no other market that constantly refuses to stand up for itself against spurious allegations. Look at the banking industry, it takes a brave person to stand up for obscene banker’s bonuses but the spokesperson for the banking industry in the UK does exactly that.
In the absence of any defence from the annuity companies that sell over £11bn of annuities it is left to me to stand up for annuities. I have no particular affection for insurance companies and have been quoted in the past as saying ‘insurance companies are ripping off their clients’, but I have a strong desire to help individuals get better outcomes with their hard earned pension funds. I fear that this negative publicity, especially coming from a respected body as the NAPF will only result in more people becoming disillusioned with pensions at a time when the industry should be trying to achieve the exact opposite, i.e. encouraging individuals to engage with pensions and make better decisions.
My defence starts with pointing out how much progress has been made in answering the historic criticisms of the annuity market. The first criticism; that it was compulsory to buy an annuity was answered by removing the compulsion to buy annuities at age 75. Three cheers for that.
Another criticism that annuities were poor value has been largely overcome by re-distributing income in favour of those living in poorer regions of the country through the introduction of postcode annuities. The rapid growth in enhanced and life style annuities has also increased the income for many annuitants with below average life expectancy.
Let’s not forget the sterling work done to promote the increase take up of the open market option. I take my hat off to Pension Income Choice Association, especially its chairman for his tireless campaign to put the issue on the political map.
What about the move by some companies who have poor annuity rates to quote annuities from higher paying companies in their vesting packs? Look at the actions of the large company schemes that appoint annuity brokers for their members thereby increasing the annuity income their members get.
The annuity market is far from perfect but it has made huge progress over the last 20 years and deserves credit for this.
I do not have a problem with the media exposing bad practice, injustice or attempts by the industry to short change customers but I do object to sensational and false accusations that undermines much of the good work in making annuities better value for customers.
Billy Burrows is director of Better Retirement