Pension firms are ripping off retirement savers by offering rock-bottom annuity rates, claims a minister.
Insurance companies ‘take advantage’ of loyal savers who have out money into a pension for a lifetime by robbing them off cash in their later years.
Pensions minister Steve Webb spoke out in an investigative TV report examining the lifetime payments retirement savers are given.
Many buy an annuity with a fixed lifetime payment with the excess funds in their pension pots after drawing a tax-free lump sum payment.
On average, a £100,000 of savings returns a pitiful £27.97 a week for life.
Poor deal
With the average pension fund totalling around £38,000, most retirement savers pick up just over a tenner a month – £10.62- to supplement their State pensions.
That gives them around £489 a month to live on without any extra State benefits or payments.
Annuity payments can vary widely between insurers and those that do not shop around for the best deal can lose valuable income for life.
An annuity is a lifetime guarantee to pay a fixed sum, and once a pensioner has locked into a deal, the contract cannot change regardless of interest rates rising or falling.
Pensioners do not have to buy an annuity, but most do. Insurers and financial advisers are also accused of taking a huge slice of pensioner income in fees for setting up annuities. Some firms take up to £3,500 with some firms from a £100,000 pension pot available to invest for a lifetime income.
Webb said: “Insurance firms rely on their customers failing to shop around. I believe their profits from annuities are excessive and they take advantage of people trusting them for the best advice.
Further action
“Governments have not helped consumers get value for money from annuities and this has to change. This government will put a stop to this.”
The minister pledged change and told the Channel 4 TV programme Dispatches that the Financial Conduct Authority had been tasked to reduce insurance company profits from the sale of annuities.
“The FCA was only formed six months ago and the annuity market is a priority for regulation,” he said. “We will see further action.”
In a bid to fend off legislation and enforcement from the FCA, insurance companies have launched a review of the market through trade body the Association of British Insurers.
In an open consultation, the ABI is asking stakeholders like insurers and consumers what they want to see from the retirement saving market.
Webb said: “Insurance firms rely on their customers failing to shop around. I
believe their profits from annuities are excessive and they take
advantage of people trusting them for the best advice.”
Well now Mr Webb, how about answering the question of the frozen pension policy then and why this policy is not the same rip off as those that you point to here.
You answered it before becoming Pensions Minister, so what has changed ? I will tell you – nothing has changed as it is still the same discrimination that it was when you were set to change it.
More honesty would not go amiss here and you know that this is wrong but having the courage and integrity to do the right thing would take a man of honour.
Standing up for your own department would be right and proper.