View more on these topics

Malcolm McLean: A phoenix could rise from the annuity ashes


Can the insurance industry blame anyone other than itself for the “anti-annuity” Budget?

For some time, insurance companies have been the target of criticism about their role in providing annuities. Newspaper headlines have regularly accused them of setting out to mislead their customers by deliberately loading their communications with unfathomable jargon, being preoccupied with their own profit margins at the expense of good customer service, failing to encourage shopping around and so on.

Some of this is justified, some of it is not – but was it the clinching factor in influencing the Government to launch what many saw as an attack on the industry and the annuitisation process as a whole?

The Chancellor’s announcement that he intends to abolish the effective requirement to buy an annuity took everyone by surprise but, with the benefit of hindsight, perhaps we should have seen it coming.

Annuity rates have been on the slide for a number of years and their value as part of the decumulation process has come increasingly under question. 

Most of this was not the fault of the annuity providers themselves; increasing longevity, gilt yields, quantitative easing and other factors were more significant contributors. 

But the industry failed to convince its critics that it was serious about reforming some of its more dubious practices and its reputation has suffered as a result.

Similarly, in relation to the forthcoming investigation by the Financial Conduct Authority into old personal pension plans (so-called zombie funds), the industry has continued to drag its feet and resist any attempt to move forward.

These schemes are a blot on the landscape with their high charges and hefty exit penalties, trapping the plan holders within them and perpetuating low net returns.

Surely the time has come for some sort of amnesty, with exit fees for pension plans older than, say, 10 years waived to give customers the opportunity of getting a decent-sized pension.

It is only by taking the initiative in these and other respects that the insurance industry has any chance of regaining the support of the Government and, just as importantly, the respect of the public at large.

The changes in the Budget were not as revolutionary as many people seem to think. It is right that savers are more in control of deciding how and when to spend their own money but many of them already had that choice previously: small savers under the triviality rules and bigger savers under flexible drawdown arrangements.

Once the hype about purchasing expensive cars and buy-to-let properties  settles down – as it will do once the consequences of withdrawing big lump sums out of a tax-sheltered pensions vehicle are fully understood – there will be a demand from many savers for some kind of good-value, guaranteed income for life which is precisely what an annuity is (or ought to be).

If the insurance industry can up its game and deliver a better and more flexible lifetime income product over the coming months, I have little doubt that annuities (perhaps under a new name) can rise, phoenix-like, from the ashes.

Restoring public confidence fully, however, in a system which the FCA described as broken is sure to be a challenge for the industry but one which it cannot afford to ignore.

Malcolm McLean is a consultant at Barnett Waddingham



Scottish Widows admits post-Budget service problems

Scottish Widows admits its service standards have dropped in the wake of the Budget and is training extra staff to address the problem. The insurer came under fire last month for delays in carrying out open market option transfers and answering telephone queries. At the time sources said Widows was taking 23 working days on […]


Regulatory burden costs advisers 12% of income

Advisers are paying £460m a year in regulatory costs, equivalent to 12 per cent of the average firm’s income. Research by Apfa, based on in-depth surveys with 74 advice firms, shows advisers spent £460m in regulatory costs in 2013, meaning the average client is paying £170 each year towards the cost of regulation. The majority of […]

Inheritance Tax, a tax on the wealthy? Urban myth or fact?

By Kim Jarvis, Technical Manager with Canada Life’s ican Technical Services Team. Inheritance tax has been around in some form since 1796. Estate duty dates back to 1894 and over the years this tax has evolved into the inheritance tax (IHT) we know and love today, which was introduced in 1986 as a replacement for […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm