The National Health Service has a long list of horrific “never” events. As the name suggests these are preventable mistakes, such as leaving foreign objects inside patients or amputating the wrong limb, for which there is zero tolerance for error.
In a Channel 4 pensions documentary on Monday night, we heard the case of Frank Adams.
Adams had a £29,000 pension pot and was sold a single-life annuity by Scottish Life in 2005 – despite supplying a marriage certificate and his wife’s birth certificate with his annuity application. Adams died from cancer last year, leaving his wife nothing.
Although Scottish Life agreed to pay Adams’ wife a joint-life annuity backdated to the day of his death, this situation should never have happened.
Given that savers miss out on an estimated £1bn a year by failing to shop around at retirement, it’s hard not to conclude that “never” events are actually quite common in the annuity market.
A married man buying a single-life annuity without knowing it will leave his wife with nothing if he dies before her. A woman with cancer purchasing a standard annuity unaware she could get 50 per cent more income through medical underwriting. These should form part of a list of annuity “never” events.
But what can be done to fix the market?
It would be easy for the Government and regulators to focus their reforms on the “greedy” insurance industry.
However, this approach ignores the bigger problem – the weakness of the demand-side of the market. Strengthen demand and the supply problem disappears.
Annuity brokers could have a role to play here and shadow pensions minister Gregg McClymont has suggested that all pension schemes should offer members an annuity broking service.
However, to do this now would risk repeating the mistake made in failing to implement minimum quality standards before automatic enrolment kicked off.
If we are going to push people towards brokers there should be a set of standards that, at the very least, protect people from basic buying mistakes.
Aviva head of policy, pensions and investments John Lawson says: “We would like the market to work very well in terms of shopping around.
“But it is about a lot more than shopping around and Dispatches highlighted that. There are brokerages out there that do not help you with the joint life vs single life decision, inflation vs non-inflation protected decision or the drawdown vs annuity decision.
“If people are going to be forced out into the market, there has to be a consistent service that will deliver the right help to them. Too many brokers out there just want to cut a deal for their customers but people need a bit of guidance before they start shopping around.”
There must also be a role for face-to-face help and policymakers need to urgently revisit the issue of simplified advice.
The advisory community could play a hugely positive role in marshalling the annuity buying power of the UK population – but only if a stripped down regulatory regime is created which allows them to do business at a lower cost.
Annuity Line head of business development Billy Burrows says: “If we analysed what type of service the average client wants, it is somewhere between no advice and full advice.
“People want something more sophisticated than execution-only but not as complex or expensive as full advice. That is the simplified space which the industry and the regulator needs to start debating.”
Attacking the vested interests of the pensions industry and comparing the annuity market to PPI makes easy headlines but does nothing for savers. And while improving consumer engagement and education is a laudable aim, it will not help the millions of people approaching retirement in the medium-term.
If the pensions industry is going to eradicate “never” events in annuities, the role of the intermediary will need to be strengthened.
Tom Selby is deputy head of news at Money Marketing