Conservative MP David Mowat has called on the Government to create a Nest-style body to compete with annuity providers.
Policymakers are coming under growing pressure to address perceived failings in the annuity market, with an FCA review of annuity profit levels due to be published next month.
In an interview with The Sunday Telegraph, pensions minister Steve Webb suggested people should be able to switch annuity providers if they can get a better deal.
Speaking during a debate on annuity reform in Westminster Hall this morning, Mowat accused the pensions industry of a “vicious” application of caveat emptor – “buyer beware” – in the annuity market.
He said: “I believe in the free market…but this market is not working and it is reasonable that we look at what we might do about it.
“I think it is reasonable that the Government thinks very seriously about providing products to compete with the industry. I think it will happen because we cannot allow the market abuse that has been going on for 20 years to continue.”
Former Treasury minister Mark Hoban suggested the Association of British Insurers’ shopping around code of conduct had helped “shift the balance” of the annuity market towards consumers.
However, he raised concerns about a lack of clarity in the non-advised market, particularly in relation to commission levels and whether the service provided covers all annuity providers.
“Firms need to be a lot clearer,” he said.
Conservative MP for Gloucester Richard Graham also called for greater transparency in the annuity broking market.
He said: “There is a strong case that annuity brokers are not adding value and the hidden commissions should be revealed and perhaps should not happen at all.”
In addition, Graham warned the shift away from commission to fees brought about by the retail distribution review could put people off seeking annuity advice.
“There is an unintended consequence of the RDR which is to put people off [paying for advice]…the idea of paying £400 or £500 upfront for advice is not attractive,” he said.
Treasury exchequer secretary David Gauke said the Government wants to see evidence that the ABI code of conduct is changing consumer behaviour when shopping around for an annuity. The ABI will review the effectiveness of the code in March.
“If [this does not happen] we will not hesitate in considering further action in this area,” he said.