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Categories:Pensions

NAPF: Savers face £1bn hit from 'unfair and opaque' annuity system

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Private sector workers are taking a £1bn hit on their pension incomes every year as a result of the “hugely unfair and opaque” annuity system, a damning new report claims.

The joint report by the National Association of Pension Funds and the Cass Business School calls for a range of fundamental reforms to the way people shop around for a retirement income.

These include building a shopping around process into all pension schemes, increasing transparency in annuity pricing, commission and retention of business, and increasing Government scrutiny of the annuity market.

NAPF chief executive Joanne Segars (pictured) says: “The annuity market desperately needs to be straightened out if the UK is to pay for its old age. People are saving throughout their working lives only to end up short-changed by a toxic system.

“Every year £1bn that could have been paid out in pensions instead disappears down the plughole of a murky annuity market.

“The way the market is priced and structured must become more transparent and people need stronger support in picking the right annuity. The Government and the industry must work harder to create a clearer, fairer system that delivers better value for money.”

Cass Business School director Professor David Blake says: “This report is a wake-up call to the pensions industry, the Government and regulators.

“If the annuity system is not radically overhauled, employees in defined-contribution schemes in the private sector will continue to suffer massive detriment and the Government’s new auto-enrolment regime will fail the very people it aims to help secure financial independence in retirement.”

Hargreaves Lansdown head of pensions research Tom McPhail says: “We need to introduce an easily accessible directory of shopping around brokers to help investors, particularly those with small pension pots.

“The market capacity for this does exist but at present investors sometimes struggle to see past their existing insurer’s uncompetitive annuity terms and to find someone who can help them get a better deal.”

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Readers' comments (7)

  • Thank the lord. McPhail has hopped off of the "OMO for all!" bandwagon and is starting to acknowledge the small pot issues.

    Maybe now we'll get movement on a sensible overall solution for the market.

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  • When RDR comes in insurance companies will be able to rip off more customers by offering low rates.Consumers with small pots wil not be able to pay fees so they will be in the hands of the provider they are with. Another indication of how the average man will be squeezed by a bad FSA ruling namely RDR

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  • Lets just see how the RDR screws these people even more as any adviser charge that is going to make it commercially viable for IFA to do business with people who have small pension pots is likely to negate any possible advantage of higher income. Because of the additional expense incurred by IFA's in post RDR world, are these pepole likely to pay? Of course not. Why not? Because they are likely not to be able to afford it so they will simply stick with the existing provder, trapped in the muddy waters that surrounds this type of business. Well done Hector and co - Another load of consumer detriment through unintended consequence of RDR. Good call guys!!!!! Can someone please help these morons wake up to reality.

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  • It beggars belief that we're in this situation due to the totally inept regulation of the industry.

    Come on Hector, what do you have to say about this?

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  • Funnily enough during the last 2 yrs, I have been doing a high number of small pension pots using OMO and enhanced annuities for those with qualifying medical conditions and although the initial commissions are fairly poor, providing this valuable service to the less well off has actually gained me a number of excellent valuable new clients who can afford our fees.

    Motto - don't give up on the little people (figuratively speaking) they are sometimes the best source of referrals as they understand the value of the services provided.

    RDR is going to be a mess of a changeover, it is up to us, who work in this industry to see if we can put our businesses in the position whereby we can first survive, second prosper and third get rid of the complainers.

    It's all about the clients, if they are happy, we are.

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  • Strange how the first three comments on here seem to ignore the basic problem of insurers offering lousy annuity rates to reward their loyal customers.

    The NAPF is effectively calling on the ABI to sort out their members and to stop clients being allowed to 'misbuy' annuities. Not much chance of that is there?!

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  • Annuity rates are rubbish because of government policy, the poor rates offered by some insurers are marginal compared to the inherrent lower yields. Remember in Germany we have recently had bn's of negative yielding bonds issued sucessfully. In other words no return, just the promise to get your money back!

    The UK government have got a vested interest here as the annuities have to invest in Gilts...and without that gilt demand who will lend money to a government to pay for all those public pensions etc..?

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