'Murky' pensions practices tackled

Retired workers will be able to "shop around" for new pension schemes in the same way they can change their mortgage under new plans to tackle "murky" practices among insurance firms, the pensions minister has said.

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Pensions minister Steven Webb says people should be allowed to 'shop around' for better deals, much like they would when changing a mortgage

Retired workers will be able to "shop around" for new pension schemes in the same way they can change their mortgage under new plans to tackle "murky" practices among insurance firms, the pensions minister has said.

Steve Webb wants to end the "lottery" in which many pensioners are trapped in potentially poor-value schemes until they die.

The Liberal Democrat MP told The Sunday Telegraph that his new plans will also address "hidden charges" from insurers to give retired workers a better deal.

It comes after an official advisory panel found retirees are often put off from shopping around because they face a bewildering variety of options in the UK's complex £12 billion annuities market.

Mr Webb said: "When you take out a mortgage, in a few years if rates change you can switch your mortgage.

"But when you take out an annuity, that's it - for life. This could easily be for a quarter of a century.

"Why shouldn't you be able to change your annuity provider so a few years later somebody else could offer you a bigger pension?"

He accused insurance firms of being "murky" and insisted practices need to be transparent.

Annuities provide the main means by which ordinary people turn their defined contribution pension savings into retirement incomes.

New annuity business - which currently sees 400,000 sold each year - is expected to double over the next few years due to the impact of maturing pension plans and the introduction of auto-enrolment for private sector workers.

The Financial Services Consumer Panel last month found that while product complexity had increased, professional advice was harder to find, and retirees were increasingly buying annuities on the open market through "non-advice" websites and "losing valuable consumer protection".

It called for an urgent reform of the market.

Huw Evans, director of policy for the Association of British Insurers, said: "Purchasing an annuity guarantees someone an income for life from their savings.

"It is calculated based on a number of factors including life expectancy, so it is not as straightforward as a fixed-term mortgage calculation. Many people welcome the certainty an annuity gives them although there are other ways they can choose to take their pension.

"The industry has already launched a review - A New Retirement - to explore changes that could be made to help people get good outcomes in retirement, including how to balance security and flexibility.

"Whatever the decision people make, it is a crucial one, and they need help to get it right.

"The minister acknowledges that the changes he is proposing could have a massive impact on the way the market operates.

"Some of these changes could be negative and some positive, but it is important that they are well thought-through. The industry is keen to contribute fully to the thinking on how we can make the retirement income system work better for savers.

"The industry has gone further than regulators and the Government demand in making the difference between rates offered by companies more transparent and helping people understand the benefits of shopping around."

Shadow Pensions Minister Gregg McClymont said: "This Government is failing to act to help savers and reform the pensions market.

"They have repeatedly voted down Labour's proposals made to help savers, when they were proposed as amendments as part of the Pensions Bill last year, including; full transparency on all pension costs and charges, more effective competition in the annuities market to tackle 'rip off' pensions and new rules to ensure pension providers have independent trustees with a legal duty to prioritise the interests of savers.

"Warm words from the Pensions Minister today are of no help to savers who need action from this Government to make the pensions system fairer.

"If he and his Government were really serious about reforming the pension system they would use their Pensions Bill to introduce reforms to help savers - anything else is just talk."