Industry experts have rubbished the pensions ministers suggestion that pensioners be allowed to switch to better-paying annuities in a similar way to homeowners re-mortgaging
Steve Webb's New Year's message attracted little support and pension experts said the minister's priorities should be focused on encouraging retirees to shop around for the best annuities rather than the possibility of switching deals.
And in further criticism, Webb was accused for having a 'thoughtless' plan.
Phil Loney, group chief executive of the Royal London Group mutual life and pensions company, said: 'The pensions minister has clearly not thought this one through.'
He noted that, when purchasing an annuity, savers are buying a guaranteed income for life.
'If people are able to switch annuities mid term it introduces another variable and the guaranteed income becomes very difficult to price correctly. The impact of switchable annuities would therefore be to drive down the guaranteed income that savers are able to secure with an annuity. This presumably is not the outcome that the pensions minister is looking for.'
Echoing Loney, Mark Wood, chief executive of JLT Employee Benefits, said that comparing an annuity to a mortgage was 'misleading'.
'A mortgage simply finances the purchases of a house while an annuity guarantees an income for life, however long an individual lives. Allowing people to chop and change runs the risk of making this guarantee unaffordable.'
Wood added: 'With annuity rates at historic lows, allowing switching as rates improve may well encourage those deferring the purchase of their annuity on the expectation of better rates in the future to commit to an annuity at this point in time.'
At Hargreaves Lansdown, head of pensions research Tom McPhail said: '[The government] should not try to invent products which either exist already or aren't likely to be good value for money.'
Webb's proposal emerged during an interview with the Sunday Telegraph. He said it could end the current 'lottery' in which traps many pensioners in potentially 'poor-value' schemes until they die.
He said there was a need to address 'the whole issue of costs' for people buying annuities as well as the 'hidden charges' imposed by insurers.
'When you take out a mortgage, in a few years if the rates change you can switch your mortgage,' he said.
'But when you take out an annuity, that's it - for life. This could be for a quarter of a century. 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?'
In November, Webb signalled an annuities market review at a debate organised by the Westminster Employment Forum. At the time he said that the government needed to take a 'broader' look at the annuities market after responding to expressed concerns by a range of commentators and advisers that it was not working well or in the interests of growing numbers of consumers.
He said: '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.'