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The Actuary The magazine of the Institute & Faculty of Actuaries
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Webb signals annuities market review

The government needs to take a ‘broader’ look at the annuities market, pensions minister Steve Webb has acknowledged.


6 NOVEMBER | BY JUDITH UGWUMADU

Speaking at a debate organised by the Westminster Employment Forum yesterday, Webb responded to concerns expressed by a range of commentators and advisers that the annuities market was not working well or in the interests of growing numbers of consumers.

He said the Department for Work and Pensions was working very closely with the Treasury, which ‘led in this policy area’ and was very concerned to make sure that people got value for money. 

‘We welcome work that the Financial Conduct Authority has already done and will do on annuities. And I am keen that any policy making that the government does on annuities is joined up with what the FCA are doing.’

He continued: ‘I ask myself the question why should annuity purchase be something that you only ever do once.

‘A bog standard annuity may not be the answer for growing numbers of people. We need a much broader look at this across government.’

The debate also heard from pensions expert Ros Altmann who said that annuities were a complex product and people looking to purchase them needed advice. 

‘We have poorly informed captive customers who need advice but the RDR (retail distribution review) has biased the market against the advice that people actually need.

‘If you buy the wrong house you can change it, if you choose the wrong spouse you change it. But with annuities you’re stuck.

‘There is something wrong with this market I think people need risk warnings and advice before they buy. They need more transparency and flexible options. You need the right product at the best rate,’ she continued. 

‘This is your one chance where you’ve saved all of those years to find the [right product for the rest of your life].’ 

Michelle Cracknell, chief executive at The Pensions Advisory Service, said the number one problem the advice service encountered was that savers were not aware that they could afford advice or receive it. She also observed that people do not understand the concept of annuities. 

‘People call us and say, “I have a pension and I thought this was going to provide me with an income, why are you talking about annuities”,’ said Cracknell. 

She also warned industry providers against overwhelming people with heavy paperwork and jargon, which was not well understood.  

Dominic Lindley, Which?’s financial services policy team leader, said choosing an annuity was a very complicated decision for most people.

He said: ‘While we welcome all the initial transparency that has been introduced in the [Association of British Insurers’] code of conduct, we’ve actually got to recognise that transparency is not going to be enough... There will still be some consumers who just accept the default.’ 

He urged industry leaders to ‘think about what we do for those consumers’. 

Richard Graham, chair of the all-party parliamentary group on pensions who moderated the debate, said: ‘I think that a more detailed study led by the government is going to be necessary. That is really going to engage my constituents and everybody else in this county on what [annuities] mean and what it really offers.’