News analysis: The shadow pensions minister has urged schemes to take a role in providing annuity brokering advice to ensure greater member purchasing power, but industry figures have raised concerns over how this could be implemented.
Speaking at a Westminster debate on the reform of the annuity industry last week, Gregg McClymont said schemes should have a hand in facilitating this advice to members.
Any legal requirements must be well thought through to avoid worse outcomes or unnecessary costs
“Labour’s amendment to the pensions bill would encourage entry into the annuity brokerage market by requiring all pension schemes to act as independent brokers themselves or ensure their customers go via an independent broker,” he later clarified.
“Our amendment also requires that the Pension Regulator set standards for all brokerage services.”
However, legal experts have said imposing such a responsibility would require changes to current legislation.
Anne-Marie Winton, partner at law firm Nabarro, said: “Before the projected retirement of the member [the scheme would need to] communicate with the member and make available to them a service, to be of no cost to the member, to seek an annuity outside the scheme.”
“It would be enough to have trustees [then] going to the employer and saying, ‘please can we stop being trustees or can you close the scheme down’.”
While this proposed amendment would be moving in the right direction, the market is not quite ready for this degree of compulsion, according to Peter McDonald, chief actuary at consultancy PwC.
“[It would] probably take five years to [implement] in terms of the cost to employers, which will probably be passed on to members,” said McDonald.
The costs associated with seeking financial advice need to be reviewed by government and the regulator, he added.
A spokesperson for the Association of British Insurers said more help shopping around for an annuity would be welcome, but it must be accompanied by help for customers to understand all of their retirement options.
“Any legal requirements must be well thought through to avoid worse outcomes or unnecessary costs,” said the spokesperson.
The heart of the annuity problem is that it is unchangeable and inflexible, MP Richard Graham told attendees to the debate. He backed pensions minister Steve Webb’s proposal for switching between annuity providers when members’ circumstances change.
But McClymont said the idea of switching annuities, in a similar way as customers can move mortgage providers, would not go very far because of the differences between the two markets. “As annuities stand they are a one-off product, there is not the opportunity for learning,” said McClymont.
