Annuities: Government plans reform to end Annuity ‘lottery’

In a wide ranging interview with the Telegraph, the Pensions Minister, Steve Webb, has proposed changes to address the Annuity “lottery” as well as the “murky” practices of insurance companies.

Mr Webb told the Telegraph that he would like pensioners to be able to switch to a better paying Annuity  during retirement. At the present, once an Annuity has been bought it can never be changed, leaving some pensioners getting a raw deal if Annuity rates rise or their circumstances change, which would have meant they could get a better deal if changing Annuity Provider was allowed.

Mr Webb said: “When you take out a mortgage, in a few years if rates change you can switch your mortgage,” he said. “But when you take out an annuity, that’s it – for life. This could easily be for a quarter of a century.” (Source: Telegraph)

He continued: “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?”

Whilst welcoming the spotlight being shone on the problems pensioners face at retirement, some experts were quick to point out that products such as Fixed Term Annuities already allow pensioners to change their Annuity provider.

“Murky practices”

In the same interview Mr Webb said that he wanted to put an end to the “murky practices” and for greater transparency in the charges paid when an Annuity is bought.

He said: “There are almost murky things at the point where you buy an annuity. There are odd percentages going in funny places for no good reason.”

“We need to ensure it’s transparent. This is a complicated transaction for many people. The industry understands this stuff, the public don’t.”

“I think lottery is a fair word. We are worrying about charges, but if the outcome at retirement can differ by 15 to 20% or more just because of who you go to, that’s a huge difference and so there can be an element of a lottery in that.”

Mr Webb’s comments come ahead of a review into the Annuity market, started in January 2013, by the Financial Conduct Authority (FCA) and whilst he said a consultation has already taken place, these proposals were not yet formal policy.