Pension annuities sector 'worrying'

Pension annuities could be the next big mis-selling scandal unless there is an urgent and radical overhaul of the sector, a Conservative MP has warned.

Pension annuities could be the next big mis-selling scandal unless there is an urgent and radical overhaul of the sector, a Conservative MP has warned.

Gloucester MP Richard Graham said the state of the pension annuities sector was "worrying", not least because consumers struggle to make sense of the products on offer and are not clear about the charges they will incur.

Speaking during a Westminster Hall debate, he said: "S ince this is potentially the second biggest financial purchase of our lives, I believe the state of things is worrying."

During a recent seminar on annuities, which he chaired, Mr Graham asked the Association of British Insurers (ABI) if there was a danger of any of its members being sued for mis-selling.

"There was a long pause before the answer came: 'Not yet'," said Mr Graham.

The Tory MP revealed that, during a discussion with an otherwise helpful pension annuities adviser, he was told: "You will never be able to work out what the charges are."

He said: "It is therefore not surprising that the Financial Conduct Authority (FCA) Consumer Panel has recommended urgent regulatory and government-led reform in order to protect and benefit millions of our constituents."

Mr Graham said that, as the definition of good-value annuities was "elusive", MPs owed it to their constituents to call for greater transparency so they know what they are being charged.

He acknowledged that the Treasury had introduced a number of improvements since the coalition Government came to power in 2010, but that things remained opaque.

Referring to the previous Labour administration, he said: "I t does rather beg the question as to why so little was done by them in their long 13 years in office, with as almost as many pension ministers."

He said: "The annuities market is no longer working for large numbers of people in this country. It needs to be reformed and, if it is to be useful, then that reform should be welcomed by everybody in the industry because otherwise annuities will not have a new role to play in financial planning in the future.

"The opaqueness of this market stands in stark contrast to the increasing amount of light being shone on the pensions industry as a whole and therefore is more of anomaly."

Mr Graham called for action on annuities over the remaining 18 months of this Government.

"With the reports now coming in with regulatory bodies, this provides our Government with a wonderful opportunity to do something that millions of people across the country will be grateful for, which is reforms that make an imperfect market work much more effectively than it currently is at the moment."

Fellow Tory MP David Mowat went a step further, recommending state provision of annuities.

He said: "The solution in this market is that the Government should be offering annuities."

The Warrington South MP insisted he was a believer in free-market principles, "but this market is not working".

Mr Mowat said: "It is reasonable that we look at what we might do about it. I see no reason - for example, we have a national savings organisation in Glasgow who offer interest rates, as government sell gilts to people - why an organisation like that cannot offer annuities in the same way. It's basically a very simple product." Although he acknowledged it had been made over-complicated.

But Mr Graham was sceptical of the idea, saying that taxpayers would "effectively see the risk of that product transferred to them".

Replying on behalf of the Government, Exchequer Secretary to the Treasury David Gauke said: "We want to ensure that this annuities market works.

"We want to make sure that there are competitive pressures there and in the light of the consultation that we've undertaken on pension charges, in light of the work undertaken by the FCA, in light of the analysis of the evidence that's already emerged in terms of the ABI's conduct, and so on, we want to make sure that the spotlight remains on the annuities market, to do everything we can to ensure that this works effectively for consumers."

Labour's shadow work and pensions minister Gregg McClymont said on Twitter in response to Mr Gauke's comments: "I like @DavidGauke but his nothing to see here statement of Govt policy on pensioner annuities is dismal news for savers."

Mr Gauke replied: "@greggmcclymont and I like you too, Gregg! But it is this govt that has introduced greater flexibility for savers re annuities."