Head of pensions policy John Lawson (pictured) says unless Pada can guarantee a certain amount of business it may struggle to attract providers.
He says: “If providers can wait until there are more people retiring with bigger funds, why would they join in 2013 when investors will only have a couple of hundred pounds and there will only be a dribble of them? There is a risk that no provider will be interested on day one.
“Pada needs to attract providers with a long-term contract and should guarantee them a certain level of business by operating on a carousel basis so if there are four providers on the panel, you get one in four annuities.”
He believes the Trustee Corporation should set a benchmark annuity rate.
Lawson adds that a carousel model would also spread longevity risk rather than allowing it to build up with the provider who offers the cheapest rate, which could go bust.
He says: “If you spread it around the market you have lots of sources of capital securing that longevity risk.”
A Pada spokeswoman says: “Providers will need to deliver minimum standards of security, administrative capability and financial viability. It will be for panel providers to ensure their mix of business is balanced and sustainable, as providers do today.”