28th August 2014
The gap between the best paying annuities – the income for life you swap your pension pot for – and the worst has widened in the first half of 2014. This is bad news for pension savers in general and does not do the pension industry much credit either writes editor John Lappin.
As this report in Money Marketing, a website for financial advisers reported recently, data from the Association of British Insurers shows that the difference between the best and worst rates increased from 31.3% to 34.9%.
The difference was highlighted by Hargreaves Landown’s pensions guru Tom McPhail who is exhorting people to shop around and not get trapped with a bad deal. This deteriorating situation will surely only increase the resolve of policy makers to scrap any idea that pension savers have to buy an annuity.
of course, the means by which you decide to turn that investment into an income is crucial. Annuities may suit some people; those suffering from ill-health may still be wise to buy an enhanced annuity. But accepting a poorly paying annuity from an uncompetitive providers, as unfortunately many thousands of consumers have in the past, is tantamount to taking a permanent pay cut for the rest of your life.
Things are certainly being shaken up from next year and many people have delayed their decision to take advantage of the big freedoms coming into force next April. But this gap is very worrying for those who maybe don’t take too much interest in their financial affairs and tend to take what is offered.
At Mindful Money, we wouldn’t want to say everyone in the pension industry is at fault. There must be good companies as well as bad to make the difference so great. Not all pension firms have provided information and some may be competitive. There market may have changed in terms of supply, demand and the component parts of annuities. The reforms themselves may have had an impact on pricing too.
But if some firms are taking advantage of a last hurrah in the market and effectively price gouging some of their less engaged customers, then it is a disgrace. We think the financial watchdog need to look very carefully at what is happening in the run up to this reform, and if necessary rattle a few cages.