Many of these people have read a few misleading or sensationalist headlines which suggest that if they seek advice they may get charged a great deal of money. They simply think they will be better off going with their default provider rather falling into the hands of an unscrupulous middleman.
In their quest to avoid being ripped off they all too often also avoid looking for a highly qualified IFA with at-retirement market expertise. Mr Webb is right in one respect - shopping around and considering all options at initial crystallisation is critical. It is probably your biggest financial planning decision so seeking advice makes great sense. One piece of advice that might need to go out to consumers is to avoid introducers or brokers who merely offer access to panels of annuity providers. There seem to be two things wrong here.
Firstly you are being charged simply for getting access to a bunch of annuity providers’ offers when this can be done for free online. And secondly you are rarely getting full independent financial advice and considering your retirement options ‘in the round’. Take the Which? (formerly the Consumers Association) Annuity Advisers Service. This service charges 1.5 per cent of the quoted value of your pension just to access their pre-selected panel of 13 annuity providers. It does potentially leave you with the best of 13 annuities but it does not give you the full OMO and this Restricted Advice service does not extend to discussion about Income Drawdown for example. Worrying stuff from a consumers’ champion you may think.
This leads us back to Mr Webb’s #5 reform suggestion about more people accessing ‘mixed pension arrangements’, with annuities being one piece of the retirement income pie. This is already the case with the option of income drawdown. And #3 reform is also covered by existing Enhanced Annuities. And market changes which took affect with RDR forced greater pensions product charges transparency over a year ago.
You could argue that the real threat to annuity rates remains the UK’s current and pro-longed low interest rate environment which continues to suppress medium and long-term gilt prices upon which annuity calculations are based. Annuity prices have fallen by as much as 30 per cent over the last 10 years according to providers.
No doubt some annuity market reforms are inevitable, especially as the FCA has been conducting a Thematic Review into the space throughout 2013 and will announce its findings in the next few weeks. And as the national media annuities-related reporting remains sensationally negative we can only wait with baited breath for the regulator’s hammer to fall.
