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Pensions minister Webb proposes one-year annuity ‘cooling off’ period

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.” 


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There are 12 comments at the moment, we would love to hear your opinion too.

  1. Just kicks the stone down the road. i wish he would stop talking

  2. The more this guy speaks the bigger an idiot he becomes. I want a ‘one year cooling’ off period for my car and if (ha ha) I don’t like it I would like to be able to give it back without a penalty and change to something more appropriate.

  3. Oh dear!

    He really doesn’t understand the pensions marketplace and the options already available to consumers does he? As JP says, he really needs to stop talking.

  4. Mr Webb please stop doing this. You mean well I have no doubt but it’s not thought through at all is it? You are the Pensions Minister after all, there’s a real risk that someone may take your comments seriously one day.

  5. It really is very concerning that we have a pension minister who doesn’t have a clue about how pensions and annuities work.

    I think it should be mandatory that he achieve QCF Level 4 before he opens his mouth again. At the very least he should be required to study and pass R04.

    Like most MP’s/Ministers, he has no formal qualification for the job he has.

  6. Surely the problem is with poor regulations in the first place. A one year cooling off would makes the situation worse not better as any potential profitability would vanish. The more this guy speaks the more I understand why IFAs (who know the retirement market) despair. Surely the answer is to stimulate competition to offer alternatives and allow market forces to work. More regulations will make for a more dysfunctional market. You only have to look at fees/vat/generic retirement advice to see the unintended consequences in action.

    What is all this talk of retirees not knowing what the costs will be when they retire? That is what we as IFAs do. Explain the income and outgoing so retirees can understand the pros and cons of a situation. If pension providers were effectively banned from selling their own annuities and the market had not been tilted to create the bias against face to face advice – then this current situation would vanish. I find it ironic that the more Politian’s and regulators try to repair the problems they just create more problems elsewhere.

  7. More complication = more advice costs + (no doubt) higher provider charges

    How about getting people to start thinking about it 12 months BEFORE they choose rather than letting them make a decision and giving them 12 months to change their minds…. For those benefitting from advice, this could result in a doubluing of advice costs!!!

    Yes there are issues in the annuity market but in many cases the best solution is also the most simple!

  8. Webb claims that getting to your “retirement do” and worrying about where your next months income is going to come from creates an issue with shopping around and utilising the OMO so he suggests a 12 month “cooling off” period. Wrong! ! !

    What is the point of letting people get to their “retirement do” and then panic about where is best to get their retirement income from? Far more would be achieved by requiring pensions providers to get clients to being the process at least 3 months (probably 6) before their “retirement do”. All of a sudden this rush to get something in place would disappear and no 12 month “cooling off” period is required.

  9. Just stop all annuities being arranged on a non-advised basis and make all consumers take advice from an adviser that is looks out for the clients interests. Even if the client stays with his current provider this should need an adviser sign off. The client will simply have to pay the advisor an appropriate fee as Government feels they are all unable to make safe decisions on their own.

    Why do we need a 12 month cooling off notice when it only take a month or so in most cases to get advice.

    If a 12 month cooling off notice is introduced then at least limit it to all non-advised and in-house annuity cases, that would kill off the market quick enough.

  10. What a fool.

    Why not a 24 month or 36 or 48 month cooling off period.

    He really hasn’t got a clue.

    All this would do is drive down annuity rates even further.

    PS the product he is talking about exists – its called a fixed term annuity.

  11. Just more hot air in an attempt to distract attention from what’s really needed, namely the creation of flexible retiremenmt income products not shackled to the limitations of annuity rates. This latest idea will never fly, not least because the providers won’t be interested (how could it possibly be profitable?) or, if they are, the terms offered won’t be attractive. Advisers will always seek to get their clients the best deal right now and there’ll be an extra round of costs 12m down the line. And anyway, we already have three year temporary annuities.

    It’s obvious (to me anyway) that the real agenda is to steer well clear of any solution that’s likely to reduce demand for Government Gilts.

  12. The product did pretty much exist with living times fixed term annuities although the minimum was 3 years and they fell under Drawdown rules rather than annuity rules as at the end of the 3 years the funds were available for TF to an annuity or to standard drawdown. We had quite a lot of clients just wanting to take their PCLS before the retirement age went up from 50 to 55 and this was one way of doing it.

    People do NOT need a 12 month cooling off period (and how would an insurer price that). a client CAN (although I think it unlikely to be advisable) go in to drawdown for one year with a fixed income and fixed maturity value which would have the same effect and then once they have settled in to retirement decide whether to opt for an annuity, drawdown, hybrid or mixture.

    Even better though, as Paul Stocks said I think, isn’t it just better for people to start PLANNING earlier. 6 months is the minimum, 12 months means you don’t have to rush, but I like to take on new clients 3-5 years before retirement so we can start planning properly without being rushed.

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