When does it pay best not to think too deeply? Or at least, to think slightly less and do something which may be less ideological but has far more practical benefits for consumers?
I ask the question because in the past week or so pensions minister Steve Webb has come up with an “idea” that consumers should be able to switch pensions providers every few years.
Webb has likened his proposal to the mortgage market, where borrowers are able to look for a new home loan provider at any time and tend to do every few years.
He says the switching between annuity providers every few years makes good sense: “Many of these [annuity] products are not good value. You have to live to 90 or even 100 to get your money back and we need to have lots more options for people rather than just making a one-off decision often with no advice and often not getting good value for money.”
Webb, it should be said, has had a life-long interest in social policy. He worked at the Institute of Fiscal Studies, where he specialised in research into poverty, taxes and benefits. He then became a professor of social policy at the University of Bath before being elected an MP in 1997.
Unlike many of his Labour predecessors at the DWP – who barely managed to stay in post for a few months and showed little understanding and even less enthusiasm for the job – Webb has stuck at it for three and a half years.
The result is a far more engaged set of pensions policy proposals that actually dovetail together more neatly than Labour was ever able to deliver.
Unfortunately, the downside of fostering (and benefiting from) an image of being a “deep thinker” on the subject of pensions, is that sometimes you feel almost obliged to float new ideas into the public arena, regardless of how sensible they really are.
And that, sadly, is where I tend to place the switchable annuity proposal. Many other commentators before me have remarked on the dangers inherent in the idea: that by introducing it, you risk breaking up the current system, whereby annuity rates, apart from those available with impaired health, are linked at least in part to overall mortality figures.
Once you do that, as fellow Money Marketing columnist Robert Reid said last week, you will end up with individual underwriting and annuity pricing. Apart from anything else, it sounds like an expensive way of dealing with pension pot running into a few tens of thousands of pounds – especially if you are repeating the same exercise every few years.
Money Marketing group editor Paul McMillan has advanced an interesting theory to the effect that Steve Webb’s idea is linked to pre-2015 electioneering, in much the same way as David Cameron’s more overt pledge to maintain the state pension triple lock if the Tories win next year’s General Election.
In other words, both Tories and Lib Dems are aware that there are around 11 million people over the age of 65 out there who are much more likely to vote than their younger counterparts. The two parties are therefore positioning themselves ahead of the election to show how pensioner-friendly they really are.
But if Paul is right, and I suspect he may be, Webb’s annuity idea actually shows up the class implications of the LibDems’ electoral appeal.
Abolishing guaranteed pension credit and paying a higher flat rate pension, while also raising the state pension age to 68 or beyond, does nothing for working class people with far worse mortality rates than the average. In much the same way, switchable annuities are only likely to make sense to middle class voters with large pension pots.
The rest of the population, who in the course of the next decade or two might end up with lump sums running into the low tens of thousands as a result of auto-enrolment, wouldn’t benefit at all.
Still, why would any LibDem give a monkey’s for a retired sheet metal worker in Middlesborough who stopped work at 68 with a pension fund worth just £30,000 and popped his clogs six years later? After all, they are far more likely to vote Labour.
Actually, if Steve Webb really wanted to make a difference, instead of coming up with deep and meaningful ideas that affect only his own limited middle-class constituency – and badly at that – why doesn’t he do something about the slew of annuity middlemen currently plaguing the internet?
Last week’s Sunday Telegraph published an investigation by Dan Hyde, in which he found several websites which buy space on Google search pages to intercept and harvest customers’ data when they are searching for the best annuity deals. According to Dan, the harvester firms earn up to £300 per customer they manage to get to part with information.
Webb could use his influence and push the FCA to introduce far tougher rules in terms of how these websites promote themselves. They should be forced to state exactly what they are doing on their home page and how much they stand to earn as a result.
Except that dealing with these problems involves less blue skies thinking and more practical action. Is Webb really up to the job?
Nic Cicutti can be contacted at email@example.com