Pensions minister Steve Webb has floated the idea of giving annuity customers a one-year “cooling off” period in a bid to tackle the “in built bias” in the current system.
The Liberal Democrat MP caused a storm earlier this year when he suggested annuities should be switchable, with experts warning the reform would see rates fall by 25 per cent and could hit infrastructure investment.
In an interview with The Sunday Telegraph, Webb said he had spoken to one pension provider about creating a pension product that gives people 12 months to consider which deal is best for them before committing to a lifetime annuity.
He said: “You could very easily have a product whereby you have got a pension for a year but you weren’t making that long term commitment until 12 months in.
“It’s almost a cooling off period. It takes a little while after you have retired to know what your income and what your outgoings are going to be.
“If you literally retire from your job and then need to live on your pension, you can’t afford a gap. You’re coming up to your retirement do, it’s your last month in work, you’ve got your final pay packet, you need something within four weeks so you start to think about your pension. Suddenly you’re thinking, I need the money.
“So actually there is an in-built problem with shopping around, sending off the paperwork with proof of identity and bank details to another provider. Although in theory people are encouraged to shop around there is still an in built bias against it.”
Webb’s comments come in the wake of an FCA report that raised concerns people are missing out on extra pension income by failing to shop around.
The regulator is now carrying out a 12 month competition study which could lead to rule changes to stimulate competition or restrict the behaviour of providers.
Webb said the Government would also consider legislative changes to address failings in the annuity market.
He said: “There have been a lot of attempts at self regulation. Sometimes self regulation will only get you so far. I can’t pre-empt what the FCA will say but they may well recommend legislative or regulatory solutions.
“Clearly, if the FCA recommend regulation or legislation, there is no doubt that the government would look very seriously at that.”