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.”
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.”