Pensions: Annuities ‘rip-off’ needs reform, say Sunday Times
Paper launches campaign to reform annuities market, which pensions minister says requires a 'rethink'
The Sunday Times has launched a campaign to encourage reform in the annuities market.
This week, pensions minister Steve Webb, while speaking to The Telegraph, suggested that annuities may not be the most suitable method of securing income post-retirement.
“If annuities were designed for a world where people retired and lived for ten years – but now they retire and live for 30 years – then we need a rethink,” Mr Webb said.
What is an annuity?
Consumers paying directly into their own pension fund, rather than into a workplace pension scheme, are more likely to require an annuity policy to retrieve their money in the form of a regular income.
Annuity policies, however, are not compulsory and have come in for scrutiny for their lack of flexibility and have been accused misleading consumers into believing they were compulsory.
Essentially, an annuity will hold your pension lump sum and pay it back to you as regular income after you retire, but the policy you select is irreversible, making it one of the most important personal finance decisions that could be made during the course of a lifetime.
uSwitch has also backed the campaign, which calls on the industry and politicians to make retirement options clearer to consumers before they take out an annuity policy.
uSwitch joins annuities reform campaign
Personal finance expert at uSwitch, Michael Ossei, commented on uSwitch’s decision to join The Sunday Times’ annuities reform campaign.
“This is all about simplicity, transparency and trust – which is exactly what we stand for,” Mr Ossei said.
“We strongly encourage everyone to get behind this campaign – if you don’t have an annuity already, it’s likely that you’ll consider buying one when you retire.”
Campaign for annuities reform
The Sunday Times said: “As regulators, politicians and the insurance industry drag their feet over how to overhaul the annuity market, The Sunday Times is campaigning for five simple changes to be made.
“It’s time to make options at retirement much clearer and clean up the industry so we get rid of sneaky charges and make the retirement world a fairer place.”
Here are the five reforms the campaign hopes to achieve:
- Force insurers to make retirement options clearer to customers
- Reveal the true cost of using online annuity brokers
- Require insurers to fully underwrite every policy, which would give fairer – and often more generous – payouts
- Make pension providers prove that married savers have been offered a joint annuity
- Simplify rules for smaller pension pots
If you are interested in annuity reform you can sign up and support the campaign here.