UK pension annuities have come under heavy fire lately, with regulators and policy makers calling for reforms to the private pensions system.
After Pension Minister Steve Webb’s criticism of the system and proposal for its overhaul earlier this week, a conservative MP has now warned that annuities could become the next financial services mis-selling scandal unless urgent reforms are made.
Gloucester MP Richard Graham has raised concerns about the complicated nature of annuity products, stating that there is lack of clarity about the fees pension savers have to pay. The drop in annuity rates over the years has also meant that savings of millions of people are locked in poor-performance annuities for life. “Since this is potentially the second biggest financial purchase of our lives, I believe the state of things is worrying,” he said while speaking during a Westminster Hall debate.
Mr. Graham referred to his recent seminar on annuities, which included the Association of British Insurers (ABI), and highlighted discrepancies in the way financial advisers charge for annuities. He said: “It is therefore not surprising that the Financial Conduct Authority Consumer Panel has recommended urgent regulatory and government-led reform in order to protect and benefit millions of our constituents.”
Mr. Graham believes that there is still no definition for a good-value annuity. Although, the Treasury has introduced a number of improvements since the coalition government came into power in 2010, the issue of transparency in the pension annuities market has remained unresolved.
He said: “The annuities market is no longer working for large numbers of people in this country. It needs to be reformed and, if it is to be useful, then that reform should be welcomed by everybody in the industry because otherwise annuities will not have a new role to play in financial planning in the future.”
The confusion surrounding pension annuities is in stark contrast to the increasing transparency in the pensions industry. Mr. Graham called for immediate reassessment and changes to private pension annuities over the remaining 18 months of this Government.
Replying on behalf of the government, Exchequer Secretary of the Treasury, David Gauke has said that the government will take steps to ensure the annuities market works well for the millions of consumers. Any action taken will be in light of the work undertaken by the FCA, and after government’s consultation and careful evaluation of the evidence that has emerged in terms of ABI’s conduct.