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MP Frank Field: OFT must investigate non-advised annuity broker ‘cartel’


Labour MP and former welfare minister Frank Field has written to the Office of Fair Trading calling for an investigation into the non-advised annuity brokerage market due to concerns it is ”operating as a cartel”.

In a letter to OFT chief executive Clive Maxwell, seen by Money Marketing, Field says non-advised annuity brokers should be subjected to more stringent regulation. The MP for Birkenhead also suggests the current market is not competitive.

Field says: “I am writing to you about the UK pension annuity brokerage system, which looks as though it is operating as a cartel.

“I am requesting that you conduct a full investigation into the UK’s annuity market with a view to proposing strict regulation of annuity brokerage operations in Britain.

“While much work has been done in recent years to increase transparency in the financial services industry, little or nothing has been done to identify and deal with issues in the annuity market.

“With the introduction of auto-enrolment into pension schemes, I believe it is exactly the time to examine the high costs of both purchasing an annuity and engaging an annuity broker.”

Field criticises annuity brokers for charging more for enhanced annuity services, suggesting “the most vulnerable in society are being given the worst deals”. He also describes the commission payments received by non-advised annuity brokers as “outrageous”.

Hargreaves Lansdown is the largest non-advised annuity broker in the UK and recently launched an enhanced annuity shopping around service.

Hargreaves Lansdown head of corporate research Laith Khalaf says: “A simple Google search for the word ‘annuity’ reveals more than 10 companies immediately competing to provide savers with an annuity broking service.

“To call this a cartel is simply nonsense. Competition in the open annuity market is fierce and healthy, which means brokers quote the keenest rates they can.

“Annuities are difficult and time-consuming for brokers to administer. This is particularly the case for enhanced annuity cases, which is why fees are higher.”

McClymont: I share Frank’s frustration with the deal people often get

Labour Shadow pensions minister Gregg McClymont has previously tabled an amendment to the Pensions Bill which would require all pension schemes to direct savers to the “best independent annuity brokerage service available” when they reach retirement.

He says: “Labour’s amendment to the Pensions Bill would encourage entry into the annuity brokerage market by requiring all pension schemes to act as independent brokers themselves or ensure their customers go via an independent broker.

“Our amendment also requires that The Pension Regulator set standards for all brokerage services. The amendment explicitly includes a duty on the regulator to set standards minimising costs. It is striking that the Government is still refusing to take the opportunity offered in the Pensions  Bill to ensure pensions people can trust, both as they build their pot up and when they come to retire.

“I share Frank’s frustration with the deal people often get on retirement. After third reading of the Pension’s Bill, we will take stock and if necessary take further steps.”


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There are 12 comments at the moment, we would love to hear your opinion too.

  1. A non- advised annuity is often hardly better than the poor offers from ceding schemes. Mr Field can sort the whole thing out very simply. Just advise anyone wishing to buy an annuity to go to an INDEPENDENT adviser.

  2. Agree Harry its not difficult to sort and does not need months reviews discussion , considerable cost and fudging to ensure certain tied groups are not excluded !

  3. Restricted advisers can also be whole of market Harry and so the rates we get wiould be exactly the same as an IFA, so how about not excluding us and just get financial advice lol? On a more serious note, how exactly will stricter regulation make any difference to a cartel if that is what it actually is? All that will do is push up their costs which will lead t higher fees which will lead to lower rates for annuitants. Why do these people think they know better than market forces? What the FCA should do is force all pension providers with maturing policies to us a research tool to see who offers the best rate for a client prior to sending out the final details. If they dont have the higest annuity rate they should be forced into stating in large bold text in the letter the following. “WE HAVE CONCDUCTED RESEARCH AND FIND WE ARE NOT THE BEST PROVIDER FOR YOUR ANNUITY. YOU COULD GET SUBSTANTIALLY MORE BY SHOOPING AROUND. SEEK PROFESSIONAL FINANCIAL ADVICE BEFORE MAKING YOUR DECISION AS IT CANNOT BE UNDONE”. I am not saying they should name the providers who offer more than they do in any way but always point the client to ADVICE.

  4. No question there are some brokers who are greedy but to label the entire market as a “cartel” is plain ignorance.

    Make it compulsory for all brokers to declare the commission to be taken (a la adviser charging) and a fairer market will emerge without the need for any vague commission limits which could easily kill the annuity brokerage market and leave pensioners with sub-standard lifetime incomes form their current providers.

    An easy headline grabber from a politician picking on “nasty” salesmen!

    Agree with Harry independent advice is best and in longer term, regulators/government must surely backtrack to make advice a more cost-effective option for such business.

  5. PS this research should be done on a no fee/commission basis for 2 reasons. 1) it would show the actual rate to be used by the provider and 2) clients can see just how little difference our fee makes to the pension in payment. They will se it can be a small price for very highly valuable advice.

  6. I dont understand this, the legislation is surely already in place? – The trustee Act 2000 states that trustee have a duty of care. Surely they are in breach of that care when offering members substandard life defining choices,(ie poor annuities) Id argue its there duty to provide the member with the best available action. Just start enforcing this.

  7. Marty, the problem with what you suggest along the line of restricted advisers is that there are so many shades of restricted. How do you know that the client wont go and see a restricted adviser that can only advise on 1 or 2 companies products. They will have still received advice along the lines you want, the only regulatory recognised term for whole of market is Independent which means the advice would have to be to see an Independent adviser.

  8. Provided they’re presented with the best rate for an annuity most appropriate to their circumstances, are customers actually getting bad deals by vesting their pension funds on a non-advised basis?

  9. Julian, the problem is that most people are not getting the best rate for their circumstances. A great example is an “ethical” insurance company that does not offer their own annuities for pensions anymore, they instead refer to a couple of companies. One of these companies offered a client an annuity on non advised basis and were going to give the “ethical” insurance company commission. One of my advisers got OMO quotes for the client and the same company were willing to offer much higher rates via an adviser who is taking fee’s from the fund.

    A lot of these companies will not check the client is eligible for enhanced rates, in their mind it is up to the client to ask for them when they likely do not know they exist. Also a lot of people would not realised that high blood pressure or high cholesterol would entitle them to enhanced rates.

  10. I think that Julian has made a fair point.

    The (or at least some of the) non-advised offerings provide a clear service to annuitants that may not be able to afford advice in a post RDR world. They either provide a restricted panel or Whole of Market service (let’s stop referring to Independent as, again in a post RDR world, the use of an Independent adviser that can also consider esoteric or non-regulated investment products offers no value to many retirees approaching retirement with small pension pots and little else). Whichever option they offer, they already have to make this clear to the customer.

    When the annuitant goes through this process, they will be able to clearly see whether the service being offered to them will result in a higher annuity than had been offered by the ceding provider. If it does, they win. If it doesn’t, they can still go back to their ceding provider. They can make this assessment without any up front cost.

    As for Mr Field’s comments suggesting that “the most vulnerable in society are being given the worst deals”, he is clearly not qualified to make this assertion. If an annuitant is able to secure an enhanced annuity by using the services of a non-advised annuity service (or by receiving paid for advice), they are being better served. They are, as would be obvious to anyone that understands the industry or what an enhanced annuity is, getting a better deal.

    It may be sad that providing advice on an annuity purchase is no longer commercially viable for many consumers, but that is one of the many outcomes of the RDR; some good, some bad.

    It is also worth noting that the provision of non-advised annuity services is not new. There have been a number of providers of such services for a number of years and, especially for those that would not have sought advice and may have been stranded with the poor offer from their ceding pension provider, they can offer an excellent solution.

  11. I had client with pot with Co.A who offered annuity with Co B. sensible client asked me to check. Concluded Co.B was best and ticked box to say advice taken. Co B ***d up and disclosed Co A’s commission rate of 8% rather than our 1%. That was my last pre RDR CPA case. My guess is Co B still Pays Co A 8% commission for the default annuity on its retirement packs that ??% of its policyholders blindly accept. Worse thing though is that I suspect rate of all Co. B’s annuities is costed to pay this amount on the subset of Co A’s introductions even though it needs no commission cost load on the advised ones. Sigh 🙁

  12. The annuity market is just not working for the customer. Customers need advice before they buy this irreversible and complex product. Anyone who sells an annuity to a customer should first help them assess whether they actually need to buy it at that time. Whether they understand the implications of not covering a spouse. What kind of annuity might be best for them at that time (if any) and only then should they look for a top rate. We are reforming things the wrong way round. The ‘rate’ should come after the first two steps i.e. 1. do I need an annuity now, with all my pension fund, if so, 2. what kind of annuity is best? Once this decision has been understood properly, having chosen the right product, people should then look for a top rate. We are way behind where the customers needs to be, but it has all been sanctioned by the Regulators. Who is actually looking after the customers? This market needs to work for the customer as well and the provider, it is possible and the role of an adviser is crucial here. There are many advisers willing to advise, there is money in the product to pay for advice, it is irreversible and could result in the loss of the majority of your capital, yet it is sold without advice! Annuity brokers have made strides in trying to help people know what questions they need to ask, but this does not ensure people actually understand the questions, understand the implications of buying the wrong product or understand that they may not actually need to buy an annuity at all, even with a small fund, at a relatively young age. This is an issue both for the FCA and the Pensions Regulator, as we roll out auto-enrolment, it must be dealt with properly now.

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