Losing £84 a year on worthless payment protection insurance, seeing your first year’s premiums disappear in charges or watching 20 per cent wiped off your Equitable Life bonus only to see it put into secure assets for much of the lost decade for equities: no-one would want any of this to happen to them, but then nor would anyone want to find they had saved in a pension all their life only to find out they had lost half its value because they did not know how to buy an annuity.
Yet while the first three scenarios have provoked reviews and compensation, for annuity customers it remains a case of tough luck.
The ABI’s publication of comprehensive annuity rate tables has revealed the full shocking extent to which some consumers will have been ripped off by the annuitisation process. Call me naïve but I am surprised, now the truth is out, just how bad the annuity story actually is.
For years the received wisdom has been that you can get perhaps 12 or 15 per cent more on a conventional, healthy annuity by shopping around, and maybe 35 or at a push 50 per cent more if you factor in seeking an enhanced income as well.
The ABI’s new annuity tables now show us that some people could have got more than 100 per cent more had they shopped around for a better deal. So some retired today are living off half the annuity they could have got had the annuitisation process been designed by government in a better way. The government and regulator face some serious questions here.
The ABI figures show a single 65-year old from Manchester cashing in £18,000 could have received £839.52 a year from Scottish Widows, Clerical Medical or Halifax, yet would have received £1,099.92 from Reliance Mutual.
If that individual had smoked for the last 10 years and had lung disease, he or she could have got £1,778.23 a year from the Pru, more than twice as much. There are minor issues around postcodes for these numbers, but broadly speaking, these figures are accurate.
Most smokers will have got their smoker enhancement, and you would hope that most people with severe illnesses would get enhancements. But you can also be sure that many in the last 15 years will have missed out, some massively.
Yet for those missing out on half their life’s pension savings to date there is no talk of reviews or compensation. This is perhaps not surprising, poor deal annuity providers would argue their actuarial calculations suggested their results were right, and the regulator knew what was going on, so gave tacit approval.
Would aggrieved pensioners succeed with a maladministration claim against the regulator and/or government for failing to create a robust system to protect their interests, or carrying out its own research and revealing the full extent of the disparity in prices? It sounds like a big ask.
Now we know just how much is at stake surely the pressure is on the Government to get a quick fix. At least 400,000 people a year remain on a conveyor belt towards a poor annuitisation process. Labour’s proposal to require auto-enrolment to offer some form of brokerage service should be put on the statute book as a matter of urgency. The ABI has done its bit – now is the Government’s turn.
John Greenwood is editor of Corporate Adviser