The Government has warned a Labour proposal that would force all pension schemes to refer members to an independent annuity broker risks creating “the next misselling crisis”.
Labour peer Lord Browne proposed an amendment to the Pensions Bill last night that would require all workplace schemes to direct members to an independent annuity brokerage service.
Labour shadow pensions minister Gregg McClymont published a similar amendment in the House of Commons in July last year.
Lord Browne argued the amendment would “strengthen the buyer side” of the annuity market and “help divert us away from the next financial misselling scandal”.
Responding for the Government, DWP minister Lord Freud said: “Making annuity brokers the first port of call for all would simply create a captive market for one part of the industry without effectively adding to consumer protections. Annuity brokers, unless they are also FCA-regulated advisers, are not required to ensure that the product is suitable for the consumer.
“I must be absolutely clear on this point: this measure would not provide the member with regulated advice. The Financial Services Consumer Panel recently published a report identifying a number of risks for the consumer in going down the non-advised route.
“This measure would therefore push people down a brokerage route and could lead to the next mis-selling crisis, not help to avoid it, as the noble Lord suggested. The amendment as it stands would mean that people would be pushed into receiving non-regulated advice and might end up locked into unsuitable products without recourse to the protections that regulated advice affords.
“Furthermore, the measure focuses almost exclusively on annuities; it makes reference to information on alternative at-retirement products, but it has to be recognised that annuity brokers are not necessarily impartial—they make their money if a member buys an annuity. Indeed, that is a point that the noble Lord made in his own speech.
“This Government’s position is that it is essential for people to understand all their options, not just annuities, and to work with relevant bodies to ensure that appropriate help is available.”
The amendment was rejected by a majority of 197 to 131.