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Tory MP: Govt should create Nest-style annuity provider

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.

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. These guys should go and study some basic economics. The primary reasons for annuities being perceived as poor value is the design of legislation, long gilt yields and longevity. All of these are within the powers of Government to influence/change.

    I have never heard of Mowat, and the next time will be too soon unless he gets to grips with the basics.

  2. I tend to agree that the annuity market isn’t ideal but I suspect it’s not as bad as is being set out.

    As usual, there is also misinformation – for example ‘fees’ for annuity advice can – where required and appropriate – be taken from the post-TFC fund being used to provide the annuity income.

    One side of the argument will say that it’s commission in another name – but in reality it is Client Agreed Remuneration (remember that concept?) the opportunity cost of which is generally a relatively negligible reduction in income – though in saying that, we usually find that this reduction is far outweighed by the benefits of the advice we’ve given.

  3. Yeh come on guys let the government provide for all !!! lets get some funding from the Russians

    Wonder how Cuba is these days !!!!

    Mowat; who ?

  4. I would agree that this is a daft idea and would be curious who the MP thinks should fund the setting up of such an institution. If NEST need 100’s of millions in loans and high initial charges for the first 30 years to provide auto enrolment pensions, I dread to think what a government created annuity provider would look like and cost.

    On the other hand, I was a little concerned by JP’s comments. whilst it is within the governments power to have an impact on legislation and to an extent gilt rates, I would be a little concerned if they decided to “do something” about longevity. not a problem for me at 38, but my much loved parents are in their 70’s and I wouldn’t want them to be visited by a government appointed “longevity compliance officer”….

  5. So Government keeps changing the state retirement age as it can’t keep up with changes to longevity and is also in the process of getting rid of earnings related retirement benefits and contracting out as it can’t get its sums righ.

    It is has the nerve to say that it is capable of setting up a state annuity service – are you having a laugh.

    Annuity rates have fallen mainly due to things beyond the ability of providers to influence – gilt yields, longevity and constantly changing capital adequacy requirements and someone in Government should be aware of this before coming out with the usual soundbites.

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