Forgive me if I’m a little crotchety this morning. I had a bad night’s sleep as I waited up until midnight to look at the ABI’s new tool that is supposed to help people make better retirement decisions.
Essentially it lists some sample annuity rates for 27 insurance companies who are ABI members. The rates quoted now date back to July’s rates so they aren’t at all relevant to today’s rates.
The idea is that if you are a customer of say Zurich, you can see where they sit in the league table and that can help you decide whether shopping around is a good idea.
I have been a consistent objector to this database being promoted to the general public for three main reasons.
1. It degenerates the important choices at retirement into buying the cheapest annuity. All the focus on annuity rates ignores the other options open to members. A quick trip to the annuity shop and job done. With such slavish demand, no wonder annuity prices are awful.
2. It allows insurance companies to see how little their competitors are charging without the slightest hint of anti-competitive behaviour. In a world where annuity prices seem increasingly dependent on supply and demand rather than economic fundamentals then anything that helps insurers price to the lowest level isn’t going to be good news for the customer.
3. It will cause confusion amongst consumers and undermine trust in the advice (and non-advice) sector of the at retirement market.
Brokers like Annuity Direct who deal with thousands of people each year will now have to explain why the rate quoted for Reliance Mutual as the best non-smoker rate isn’t in fact a real rate. For one it is out of date, another it is for someone who isn’t your age and doesn’t live where you live. Even worse, the rate isn’t on offer to anyone other than an existing saver with Reliance Mutual.
Amusingly enough, Hodge Life, who aren’t ABI members, provide the best rates today for a healthy non smoker with a modest pot, but they aren’t on the league table.
So this is meant to help the consumer is it? Pull the other one: if you tried to cynically design a tool to confuse and mislead consumers whilst having a veneer of respectability then you could quite well come up with this. Consumers who rely on this tool are still likely to make poor decisions. Perhaps not as poor as they would have done before, but poor ones nonetheless.
Of course, the ABI has covered itself with the suggestion that you can take advice BUT you will be charged a fee. This cynical half-story seems deliberately designed to put people off seeking expert help. No mention is made of the commission payments built into the annuity rates quoted which could be used to pay the fee.
Read the DWP’s authoritative research into why consumers make bad decisions at retirement. It’s buried on their website so here’s a link.
It rightly says one big factor why more people don’t seek help is because they wrongly fear being charged a lot of money by advisers.
You can’t help thinking that the last group of people most ABI members want their consumers talking to are good financial advisers. If everyone coming up to retirement spoke to a good financial adviser then there’d be a big hole in the estimated £1bn wasted each year at retirement. That money by and large goes to prop up the profits of life insurance companies.
One can’t reasonably expect the ABI to do anything other than to safeguard its members’ interests. My ire is aimed at the Treasury and FCA officials who seem to think that the life industry can be relied upon to implement effective self regulation in this market.
When there is a billion a year at stake then that is like asking the dog to mind the sausages.
Alan Higham is chief executive of Annuity Direct