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Pensions minister vows to tackle ‘excess’ annuity profits

Pensions minister Steve Webb has vowed to tackle insurers who make “excess profits” from savers who do not shop around for an annuity.

The Financial Conduct Authority is carrying out a review of the annuity market, focusing on the level of detriment consumers suffer from failing to shop around at retirement.

The regulator is also analysing whether there are firms or particular groups of consumers where this detriment is more likely to occur.

The findings of the review will be published early next year.

In an interview with Channel 4’s ‘Dispatches’ programme, broadcast last night, Webb said: “Companies have clearly traded on the fact that customers don’t shop around.

“I think they are making what an economist would call ‘excess profits’. I think we have to make the market work and these sorts of profits will go.

“We have to make sure this doesn’t happen.”

The programme also saw independent pensions consultant Ros Altmann claim annuity misselling could be “at least as big” as PPI misselling – an accusation refuted by the Association of British Insurers.

ABI policy director Huw Evans said: “Insurers have signed up to a code which goes much further than the regulations in encouraging customers to shop around.

“With PPI people were bounced into buying products they couldn’t benefit from. With annuities, people benefit every single day from the income they provide.”

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Comments

There are 8 comments at the moment, we would love to hear your opinion too.

  1. “insurers who make “excess profits” from savers who do not shop around for an annuity.”

    Any evidence for that? It appears that you’ve decided that there is Mr. Webb. That may well be the case. Alternatively it could be that those “excess profits” support current and historical annuity rates for all. Much like orphan policies in insurance companies supporting With Profits funds. Admittedly those annuitants are still alive!

    The problem with making pronouncements such as these or indeed any negative news story regarding pension is that it has a cumulative effect in the minds of the buying public. “Pensions are bad, pensions are a rip off etc.” That may well be the case but what is not beyond dispute is that the average private pension fund at retirement is £30k. That after the greatest increase in wealth in the whole of human history over the past 30 years. I think we’ve got bigger problems…….

  2. The Plymouth Brethren said that annuities are immoral, and of course they are right! All those people who do not qualify for flexible drawdown and who feel they were duped into investing their money in personal pensions and AVCs should be allowed a choice – either let them have their money back as a taxable lump sum or let them decide to hand it over to an annuity provider (or drawdown provider). I’m sure the annuity market would end immediately if people were given a choice about their own money.

  3. I agree with Sam – the issue is that pensions (and annuities) are getting a ‘bad press’ but there are bigger issues at play.

    It’s very easy for politicians / media commentators come at things from a half empty viewpoint but I would suspect that the annuity market is relatively competitive and therefore all the negativity does is create even greater inertia.

    Yes it’s important that people shop around but implying that firms who consumers choose due to inertia are at fault does nothing to foster a sense of reality and personal responsibility when it comes to longer term financial (and retirement) planning.

    I’ve yet to watch Dispatches however it will be interesting to see if there is any indication in that programme that retirement income options are more flexible then ever – providing consumers with a genuine choice.

  4. It is becoming like a scene from Dr Strangelove. As his tenure in office counts down expect more extreme comments without analysis. Very sad as he started well.

    Feels like 18 months of noise to come

  5. Steve Webbs comments should be stood beside his statement during the 2nd reading of the pensions bill where he admitted freeloading off from the Australian (and Canadian) taxpayers by maintaining the freezing policy of all ex-pats state pensions. ie. no annual uprating even though they have qualified for it the same as those who do receive it.. Pot and kettle come to mind.

  6. Mr. Webb, you have failed to mention the Insurer who makes the biggest, most offensive profit out of those who saved for retirement – the British Government itself! It silently accepted National Insurance contributions from all pensioners for the decades of their working lives, but for more than half a million it selectively (discriminately) refuses to index their pensions purely because of where they now live, thereby ‘pocketing’ more than £650 million a year! Ironically, most ‘frozen’ pensioners are in Commonwealth countries for which the Queen has often stated a special interest, even expressing her opposition to all forms of discrimination in the Charter of the Commonwealth which she signed in March this year. Not meeting the obligations implicit while accepting payments is deemed fraud in the real world – what underworld do you live in, Mr. Webb?

  7. Andy Robertson-Fox 20th November 2013 at 1:19 am

    JP said he started so well and indeed he did…when in opposition. He then tabled an Early Day Motion calling for the abolition of the frozen pension policy which affects 4% of UK citizen pensioners world wide…the policy whereby the State Retirement Pension is frozen at the level at which it first becomes payable. Uprating annually is applied in the UK, EEA and a selection of random countries like Israel, Macedonia and USA but, as George Morley has pointed out, not to those living in, for example, Australia and Canada and about 100 other countries.
    Webb now has incorporated the same discrimination as Clause 20 in his Pension Reform Bill but he, and his coalition partners, talk on about standing up for fairness and standing up for those that have worked hard and earned their pension.
    If Webb cannot even operate his own pension scheme properly should he not address those problems before embarking on lecturing others on theirs?

  8. Freezing indexation is bad, but an even greater injustice is perpetrated daily in this country. When clients come to me with their meagre pension funds for annuity purchase or drawdown I always ask them if they would like all the money they invested back, and to a person it’s always the same answer – of course they would. In most cases they were duped into investing and did not fully understand the implications of losing control of their money. In some sad cases the meagre income they will receive simply reduces the amount of pension credit they could have claimed had they not been duped into investing in one of these plans in the first place. There should be a general amnesty and every single person in this country who invested in one of these plans should be allowed the option of receiving back their investment (less tax of course).

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