Annuity abuse: will naming and shaming bring industry to heel?
Worst offenders are costing customers an annual loss of £1,444 on the payout from a £100k pension pot
THE insurance industry has at last come clean about “the abysmal way” it treats customers in retirement, said Dan Hyde in the Daily Telegraph. In a landmark move, the Association of British Insurers (ABI) has forced firms to disclose the rates offered to savers “when they turn their nest egg into an income for life by buying an annuity”.
The results aren’t pretty. “The worst offenders are short-changing customers by up to 30 per cent” – meaning a loss of £1,444 on the yearly pay-out from a £100,000 pension pot. And because an annuity purchase is “irreversible”, those persuaded to take substandard deals “are locked in for life”, meaning a cumulative loss of £43,320 over 30 years. As pensions campaigner Ros Altman observes: “Regulators have overseen massive market failure here”.
Research shows that buyers remain woefully uninformed about their options, said The Guardian. Many just stick with their pension provider, “unaware they can shop around with their pot of money”. Less than a fifth realised that if they smoked or were overweight they could get a much higher income. The ABI snapshot reveals that a heavy smoker with impaired health could get 46 per cent more annually with the best-performer in this category – Prudential - than with the worst, Friends Life.
The worst providers of mainstream annuities were the Lloyds Banking Group’s Scottish Widows and Clerical Medical. Another low-payer is the £70bn Phoenix Group, whose brands include Pearl and Royal & Sun Alliance.
Scottish Widows, which plans a major brand re-launch this autumn (the widow will appear less “lonely and distant”), says the ABI data is already out of date – and that it has re-priced its standard annuities. So perhaps the pressure’s working.
Well, that’s the optimistic line, said Patrick Hosking in The Times. But the big hole in the ABI’s “attempt to bolster public faith” in this “opaque” and “highly profitable” market is that “the system depends on the honesty and integrity of firms”. The “specimen” figures submitted are based on estimates rather than actual transactions; and there are no checks. “Wash your mouths out, all you sceptics who reckon it could be manipulated and abused as easily as Libor.”
If the ABI exercise encourages more people on the brink of retirement to shop around, that can only be a good thing – “but the actual figures should be taken with a pinch of salt”.
Nearly half a million people each year buy annuities and that will grow as auto-enrollment brings in millions more pension savers. “A thorough review cannot come too soon, if only to restore faith in this important, but oft-neglected corner of the financial services forest.” ·