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Labour to investigate ‘annuity safe harbours’

Gregg McClymont 480

Labour plans to investigate the merits of “annuity safe harbours” to reduce the risk of people making the wrong annuity choice when they reach retirement.

An International Longevity Centre policy paper on the advice gap and the RDR, published last week, suggests a possible solution to savers buying the wrong type of annuity could be to change at-retirement default options.

Currently, people who do not make a decision are automatically defaulted into a single-life annuity. The ILC paper suggests this should not be the case for people who are married, who would likely be better off buying a joint-life annuity.

Speaking at an ILC debate in the House of Lords, Labour Shadow pensions minister Gregg McClymont (pictured) said the party is keen to explore the idea of annuity safe harbours.

He said: “The paper explores the idea of better safe harbours and that is an area we are interested in talking to the industry about.

“There will be a need for better defaults and I do not think it is fair for the industry to expect the consumer to make all the right choices on their own.”

McClymont also suggested the pensions industry could follow the energy sector, where providers will eventually need to tell each customer what the best deal on the market is.

He said: “I think we are moving towards that place in pensions.”

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. As I am approaching retirement the annuities are absolutely beyond belief with regards to their returns?
    I am finding it impossible to take retirement as approx 4 years ago an amount of funds which would have yielded £10000 per annum now yields approx £4500 and still the annuities are dropping?
    I think the Government should look at ways where the whole fund can be taken and privately invested as yields can be achieved much greater than annuities.

  2. Where do they get these phrases from…’annuity safe harbours’

    Whilst I agree that no choice of options present a risk of an unsuitable, fixed for life annuity, the alternative may be very tricky to deliver. The opposite to no choice maybe too much choice and indecision and apathy may take over.

    The enforcement of the OMO ionly, instead of a default annuity would prompt action rather than passive acceptance of whatever is offered by the pension provider.

    The client can then choose to take advice or not from the wide variety of services and information in the market.

    The idea that the ‘best deal’ could be offered by the provider would seem impossible to deliver without accounting for different circumstances and annuity rates

  3. Erm, how can a joint-life annuity possibly be made a default option, when the vast majority of providers won’t have the spouse’s details – and nor should they?

  4. Sorry but without a full review of an individuals circumstances how can you assume that a default joint life annuity is better than a single life annuity for a married person.

    Just what is an annuity safe harbour?

    Currently indexation means that someone would have to live for around 15 years until they catch up with the missed income and have probably been living on the breadline during that time.

    And there is no such thing as the best deal – this is advice not selling a commodity!

    Once again those with no knowledge (a professional politician with a background in History) come up with a solution!

  5. They clearly don’t understand, this shadow pensions minister doesn’t even understand the regulations surrounding best advice.

    What he proposes is no different from people going to an accountant or a solicitor and asking whats the best thing to do. Without giving much information to them and expecting it for free.

    Our industry needs to come together to lobby these people because they clearly don’t have a clue yet write legislation.

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