FORGET about hidden charges – the single biggest racket in pensions is at the annuity buying stage.
It’s been very clear for a long time now that retirees using their pension pot to buy an annuity are too often treated unfairly by providers.
Millions have been given a raw deal at retirement, seeing their lifetime savings converted into a lower pension income than they could have received. In some cases it’s the difference between getting by comfortably in retirement and struggling to keep their head above water.
The gravity of the decision faced by pension savers at retirement cannot be underestimated: you’ve got one chance to buy an annuity and you can’t go back for a better deal once you’ve made your purchase.
Yet the regulator has, true to form, allowed yet another scandal to unfold on its watch. Commentators (including this one) and consumer groups have for years been calling for a probe into the annuities market.
They point in particular to the relatively low proportion of retirees who exercise their right to shop around for the best annuity. Most simply take the deal offered by their existing pension company and settle for a pension income up to a fifth short of that available on the open market.
Now, just two months before it’s replaced by the Financial Conduct Authority, the Financial Services Authority (FSA) has finally launched an investigation into annuity pricing.
The timing is no accident. Millions of workers will be saving into pensions for the first time over the coming years, under the automatic enrolment reforms rolled out last year.
The new pensions’ success will be seriously undermined if people can’t be confident they’ll get a good deal when they retire. The recent plunge in annuity rates adds even greater urgency to the need for reform.
The insurance trade body has made some progress on convincing firms to do more to let customers know they have a right to shop around.
But the FSA has left insurers to police the issue for far too long. Millions of pensioners have lost out because providers have been allowed to get away with short-changing them.
Insurers would be well advised to pre-empt the investigation by cleaning up their act and giving retirees a better deal.
No surprise if banks get deadline for PPI
A STAGGERING 11,000 PPI complaints a week are being sent to the Financial Ombudsman Service, it has revealed.
Historical data shows that the majority of complaints are found in the consumer’s favour. You’ve got to complain to the provider first before going to the FOS, so it’s clear that the banks are still rejecting legitimate claims in the knowledge that few will bother taking their grievances any further.
True to form, the FSA has done very little about this, bar a fine for the Co-operative for failing to handle complaints fairly. How it hasn’t yet found the big four guilty of the same offence is a mystery.
PPI cases will be flowing into the FOS for several more years unless banks manage to secure a deadline on complaints. It’ll become clear over the coming weeks when they file their full-year results exactly why the banks are lobbying for that deadline: the PPI bill is getting bigger and bigger.
The FSA has poured cold water on the deadline bid, but you wouldn’t bet against a change of heart. Somehow that would be an apt way for the FSA to bow out: by bending to the will of the banks at the cost of the consumers who it has a duty to protect.