Urgent action is needed to make the market in annuities work for all people, a committee of MPs said today.
The work and pensions committee report, which examined delivery of the Department for Works and Pensions' reforms during 2012 and 2013, highlighted that the government and regulators had clear evidence for some time that the open market in annuities was not working in the best interest of most pension scheme members.
Committee chair Dame Anne Begg, chair of the Commons work and pensions committee, said: 'Urgent action is needed to make the open market in annuities work for all, not just the minority currently able to negotiate it successfully.'
In the report, the committee stated: 'If improvements in the annuity market do not occur soon, the government might, as a last resort, have to consider taking steps to separate the function of providing pensions schemes from that of providing annuities.'
Responding to the review, a DWP spokeswoman said the department agreed that the open market option was not resulting in the best outcome for all consumers.
'[This] is why [the DWP] introduced and supported measures via the Open Market Option Review Group. DWP is keen to see an assessment of the impact of these measures, including Association of British Insurers Code of Conduct on Retirement Choices, due in the Spring. DWP recognises the challenges.
'The structure of the market including provider retention strategies are one aspect of the challenge, which the FCA market study will explore.'
The report also welcomed the DWP's decision to ban consultancy charges in workplace pension schemes used for auto-enrolment.
However, the MPs added: 'More needs to be done to deal with excessive charges, and the lack of transparency in pension's costs and charges, including the imposition of a charge cap.'
The committee said that, once the government's plans for Defined Ambition are published, it expects to carry out pre-legislative scrutiny on the resulting proposals for broadening the range of pensions available to employees.