David sticks up for the annuity. David is editor of Pensions Insight and Engaged Investor
The cries of betrayal have been loud. Critics have accused the Financial Conduct Authority of being uncharacteristically lily-livered following its wide-ranging inquiry into what is widely considered to be a broken annuities market.
However, any regulator or policy maker needs to make sure that its remedies are founded on a sound evidence base. If they do not, a battery of legal challenges awaits from any disgruntled companies that find themselves out of pocket.
Better to ensure that the policy is not made in haste – pensions minister Steve Webb’s delayed pension charges cap, anyone?
There’s not much point encouraging shopping around if an individual has only three choices
The FCA’s market study focuses a lot of attention on making consumers better able to shop around for the best deal, concluding that the typical punter will be able to secure a 20% better outcome if they do so. However, for those with the smallest savings pots, the market is practically non-existent.
There’s not much point encouraging shopping around if an individual has three choices of supplier to go to at best.
It is welcome, therefore, that the FCA will be looking not just at improving choice in the existing market, but taking a wider-angled look at the nature of at-retirement provision. Options exist. For some, easier access to income drawdown will be the best way to go.
Then there’s Webb’s proposal of a switchable annuity, floated on a slow news day at the end of the New Year break.
But this doesn’t survive the real-world test – imagine the violent fluctuations in solvency requirements that insurers would have to contend with under such a regime. Fixed-term annuities are an idea worth exploring, though.
They could rescue annuitants from the prospect of a once-and-forever decision, while providing insurers with a more reliable idea of their outgoings. But amidst the current furore over poor value annuities, we should be careful not to throw out the baby with the bathwater.
In her native country, just three annuities were written last year
In this month’s PI profile, we talk to New Zealand academic Professor Susan St John who points out that in her native country, just three annuities were written last year. While the market may be deeply flawed, it is important to ensure that the benefits of annuities are not forgotten: they provide a long-term, secure income, no matter how long you live.
Nevertheless it is vital for trust in workplace pensions that in this area, like so many others, schemes are delivering value for members – the theme of our Workplace Pensions Live conference this year.
Annuities are just one of the issues that will be discussed at our major annual event.