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Pensioners Are Being 'burgled' By Insurers On Annuities

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Telegraph 9/12/13


A generation of pensioners is being let down by regulators failing to stop Britain’s insurers and brokers from “burgling” OAPs through charges and fees on retirement plans, the industry watchdog has said.

A report has called for an unprecedented investigation into the “excessive” profits the insurance industry is making from annuities, adding that it was nearly impossible for a pensioner to know if they are getting a good deal.

Annuity rates tumbled during the credit crisis in a damaging side effect of the Bank of England’s Quantitative Easing programme. The latest research suggests that pensioners are being hit twice - from the wider economic conditions and potentially sharp practices among savings companies.

The number of people forced to buy annuities with their retirement savings is due to double by 2015 as workers without final-salary pensions have to purchase the schemes.

There are already 400,000 annuities sold each year, which takes a person’s the lifetime savings and pays out an annual income until they die.

Debbie Harrison, a FSCP member and visiting professor at Cass Business School, told the Telegraph: “The annuity market is dysfunctional, there is a complete lack of clarity over where consumers should go for advice, and the kind of advice they are getting. And insurers are benefitting from

She added: “One of our experts said: “There is so much focus on what we call savings accumulation, but what’s the point of triple locking the front door when you are leaving the back door open for burglars.”

The Treasury-approved panel added that brokers or middlemen are incentivised to sell a certain brand rather than advising people on the best way of converting their pension pots into a policy that pays an income over the rest of their life.

Far more protection also should be given to customers, who once they take out an annuity, have no way of changing the product if they discover they have made a mistake or could have secured a better rate, the FSCP said.

The Association of British Insurers (ABI) insisted that the insurance industry was “determined to ensure” that people have access to the help they need to make the right choices. A spokesman added that an industry code set minimum standards on transparency.

But the FSCP said it appeared many customers stay with the same insurance company that provide their pension when it comes to buying an annuity because they were too “scared” to do anything else. Ms Harrison said: “It’s in the insurance companies interest if they can retain them as customers for their retirement.

“They can say to them it’s very good to shop around but they are benefiting from people’s anxiety and a lack of information.”

Research carried out this summer suggested that insurers make up to £35,500 profit on each £100,000 taken from savers over a 25-year retirement by investing the customer’s money.

The ABI disagreed with the research, claiming the cost of providing a plan were far greater. But they refused to say what the actual profit margins on the products are.

Steve Webb, the pensions minister, last month accused insurers of making “excess profits” by taking advantage of loyal customers and trapping them in annuities paying poor rates.

The FCA has committed to review the annuity market, but campaigners have already voiced fears they will not go far enough.

Ros Altmann, a former Downing Street advisor, said the FSCP report was the “most damning indictment” of the annuity market she had seen.

She added: “It is failing a generation of pensioners. I have been calling for years for this to happen and I can only pray that now, regulators will be shamed into taking the action so badly needed in one of the last areas of financial services where rip off charges are still condoned.”'

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