The majority of retirees for whom an annuity is the best option should be entitled to expect that the system will be designed to give them a decent shot at getting the best possible outcome.
So last month’s publication by the ABI of sample annuity rates from all providers should prove a wake-up call to policy-makers.
Lets get this clear – the ABI figures make shocking reading. A 65-year-old smoker with poor lung condition annuitising £18,000 could have got £839.52 from Scottish Widows, Clerical Medical or Halifax had they not understood their entitlement to an uplift, or £1,778.23 from Prudential if they had shopped around. So some people will, and thousands already have, lost up to half their life’s pension savings through poor buying architecture. Yes most smokers now know they can get more, and yes many seriously ill people know they can get more. But not all do, and over the last 15 years I suspect many retirees have been let down more than Equitable policyholders, pensions misselling victims or people who bought PPI.
I and many other journalists have been writing about the open market option for years. On the information that has been available, the received wisdom has been you can get maybe 10 to 15 per cent more on a conventional annuity by shopping around, with maybe up to 40, or at a push 50 per cent if you factor in health conditions. It now turns out our Widows customer could have got more than 100 per cent more.
There are some serious questions to ask here. Providers offering such low rates to unwitting customers must explain how these rates reflect their TCF obligations, whatever their actuaries have told them. Trustees not directing members to a brokerage service must now start to do so immediately. If they do not, they are on notice as to the outcomes they may be causing. If they are unable to find a broker to accept them, and most execution-only services will accept small schemes, they should even think about paying to make sure one does.
But regulators should also be asked to explain how this has been allowed to happen for so long.
It is only the publication of data from all providers that has revealed the sheer scale of the annuity rip-off. Yet the FSA has always had the ability to find and make public the extent of the differences between providers. Why has it not done so? And why has the DWP not moved more quickly to shape the annuity journey so the default is a brokerage service for all as a minimum? Advisers want to offer that, and commission means it can be achieved. Co-ordinating it should not be beyond the wit of man given what is at stake – up to half of someone’s life’s savings.
More than 1,000 people reach annuitisation every day. Every day policymakers delay means more bad outcomes for unwitting members of the public. Government maladministration charge, anyone?