Pensions minister Steve Webb has called for retirees to be able to switch to better paying annuities in a bid to tackle what he calls “murky” insurer practices.
In an interview with The Sunday Telegraph, Webb said pensioners should be able to switch annuities in the same way homeowners can switch their mortgage rate every few years.
Webb said he wanted to tackle the “whole issue of cost” of buying an annuity, and insurers’ “hidden charges”.
He said: “When you take out a mortgage, in a few years if rates change you can switch your mortgage. But when you take out an annuity, that’s it – for life. This could easily be for a quarter of a century.
“Why shouldn’t you be able to change your annuity provider so a few years later somebody else could offer you a bigger pension? Why shouldn’t you be able to shop around?”
Webb also likened the annuity market to a “lottery”, saying that while the industry understands the annuity buying process, the public does not.
He added: “There are almost murky things at the point where you buy an annuity. There are odd percentages going in funny places for no good reason.
“I think lottery is a fair word. We are worrying about charges, but if the outcome at retirement can differ by 15 to 20 per cent or more just because of who you go to, that’s a huge difference and so there can be an element of a lottery in that.”