Pensions minister Steve Webb has questioned the value for money offered by insurers and non-advised brokers as he continues his assault on the annuity market.
The Liberal Democrat MP caused a storm over the weekend when he suggested people should be able to switch annuity provider if they can get a better deal elsewhere.
The proposal has been criticised by the industry, with experts warning providers would need to cut rates by 25 per cent to accommodate the reform.
Speaking on BBC Radio 5 Live earlier today, Webb said: “When you take your pension pot and turn it into a retirement income, the way things work at the moment is that is a one off decision and it is irreversible.
“Many of these products are not good value at the moment. You have to live to 90 or even 100 to get your money back and we need to have lots more options for people rather than just making a one-off decision often with no advice and often not getting good value for money.
“Some of the people who have been critical of what I have said are people who make their living selling annuities. We have to be on the side of the consumer here.
“There is a lack of advice for people, particularly people with small amounts of money who are not going to pay hundreds of pounds for advice. This market needs a big shake-up and I am trying to poke it with a big sharp stick.”
Hargreaves Lansdown head of pensions research Tom McPhail said the Government should focus on increasing the number of people who shop around at-retirement and insisted annuities are, in general, a value for money product.
He said: “I think the minister is being fed misinformation. People have a right to shop around – we simply need to make it easier for people to do that.”
However, in response Webb said: “I simply don’t buy this argument that annuities are good value for money. Tom McPhail is an annuity broker and he is promoting annuity brokers. There are questions about whether people are getting value for money from those types of services.
“Education is vital and we need to strip away all the jargon. Buying an annuity is a huge financial decision and we need to avoid this cliff edge where you make a decision and then you’re stuck with it for the rest of your life.”