View more on these topics

Steve Webb’s switchable annuity plans could see 25% rate cut

Experts have warned pensions minister Steve Webb’s proposal to allow savers to switch providers after buying an annuity could see rates plummet by 25 per cent.

In an interview with The Sunday Telegraph, Webb suggested people should be able to ditch their annuity provider if they are unhappy with their existing deal.

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?”

Annuity Direct non-executive chairman Alan Higham says: “If the Government made this mandatory for every annuity contract it would wipe 25 per cent off rates overnight. I don’t think many people retiring would thank Steve Webb for that.”

One senior industry source suggests the frictional costs involved in an annuity transfer mean most people would lose out if they switched providers.

He says: “Surrendering annuities is a zero-sum game minus the frictional costs of administration and underwriting. This proposal would ultimately result in worse annuity rates than we have at the moment.”

A number of providers, including Just Retirement and LV=, already offer fixed-term annuity products which allow savers to secure a retirement income for a limited time without locking into a lifetime annuity.

However, take-up of fixed-term annuities has been limited, with MetLife pulling out of the market in September 2012.

Labour shadow pensions minister Gregg McClymont says: “The Government have not done their homework on annuities and this half-baked kite flying is the result.”


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm