The analysis covered 7,500 cases and used the same measure for all. The clock only started ticking when a completed application form had been received by the ceding scheme, meaning it was just a question of releasing the money. The results are depressing.
The average release of funds took 30 days in 2008, up a third from the previous year. Some companies stand out in their awfulness – Windsor Life took 99 days on average, with Lincoln (73 days) a close second. Retiring investors have therefore been left to carry the can. While being made to hang on weeks or months for their pension savings to be passed across, annuity rates have been slumping. In the month following quantitative easing, there were more than 20 cuts. While costing investors dearly, offending insurers are rarely brought to full account.
The ABI is championing the Options initiative which seeks to speed up the annuity application process. The initial results are a step in the right direction. However, Options has some serious flaws. Participation is voluntary and there are no mandatory investor safeguards.
Our investigation shows investors are routinely facing huge delays, often months. Given many ABI members have failed to commit to it, let alone join, time must be called on the current system that allows insurers to police themselves.
Like alcoholics in a brewery, insurers often find the temptation to milk their pension customers one final time too great and are unable to break the habit. The current system means they don’t have to. The pursuit of profit often means employing no more than a skeleton staff to fight through annuity applications, while continuing to levy a management charge every day the funds remain with them.
Obviously, an additional 30 days’ charges are worth hanging onto. This research (and IFA experience) tells us some firms will not change their ways until forced to.
Some one million annuities will be set up this year. This has become such a vital issue that it now needs to be removed from insurers’ control. Mandatory minimum standards need to be forced onto insurers governing the whole annuity process. Investors need an automatic right of redress in the event of non-compliance, together with binding increasing penalties levied against offending companies.
Options can certainly be the technical solution to allow insurers to move investors’ funds quickly but in and of itself it will not force insurers to do so. Only a select handful of insurers consistently act in the best interests of their retiring customers. The time for talking is over.
Nigel Callaghan is a pensions analyst at Hargreaves Lansdown