Three cheers for the fearless ABI

annuityWell I never thought I’d read that headline, let alone write it.

But over the past forty eight hours it appears that the ABI has moved from its normally defensive posture and like Joe Root, is making a determined effort to get on the front foot.

With brilliant timing the ABI have launched a new annuity calculator that shows how selling your pension savings to Scottish Widows can lead to 23% less income than selling them to Reliance Mutual.

The timing’s perfect as a few days before the Daily Express had run a front pager on Ros Altman’s calculations that on average you need to live to 90 to benefit from an annuity. Ros’ point is that annuities in general are mis-priced by insurers and that there’s a failure in legislation that leaves those selling out their pension savings to an insurer, in the dark over whether they have got any value.

The timing’s also perfect as the ABI announcement came the day before Frank Field’s call for an OFT enquiry into cartel-rigging by non-advisory annuity brokerages and a brilliant article by Stephanie Hawthorn in Pensions World that tells us..

With larger DC schemes, 35% say all of their members have taken an annuity from the open market, compared with a tiny 18% of members of smaller DC schemes. It is a disgrace that so few members of smaller DC schemes use the open market option. We must do something to end the lottery of retirement where workers at small firms have little or no help. As Mel Duffield, head of research and strategic policy, NAPF, said: “The decisions around how to turn a pension pot into an income in retirement are baffling. Savers need help from an independent source to ensure they understand the options and make sensible choices.”

But there are questions

One question is why have we allowed the baby boomers born in the years 1945-50 to reach retirement in 2010-15 with no protection from the impact of Quantitative Easing and with annuities that now cost twice what they did ten years ago?

A second question is whether Ros’ suspicion is right and that lifeco’s are now mis-pricing annuities. Ros’ suggestion leads to a conclusion that there may be collusion between insurers and if the OFT are to launch an investigation into non-advisory sales, they might ask a few questions of the providers of the products under investigation. But this may have to wait for the FCA’s thematic review which won’t now be published till next year (a case of shutting the stable door if ever there was one). The last academic research on this by Cannon and Tonks confirmed earlier research by Orzag and Murthi that insurance margins were not thick and that annuities were value for money. However , there is a suggestion that insurers have used Solvency II and gender-equalisation as a smokescreen to bump up their margins.

A third question is what is happening to provide alternatives to those with smallish pots above the cash-out level of £18,000. We have been promised a product by Alliance Benstein for over a year that could provide a collective drawdown that allowed those with meagre pots of as little as £25,000 to avoid the irreversible annuity purchase till at least age 75, continue to be invested in appropriate assets and benefit from economies of scale from a pooled solution.

The absence of this product and the failure of any other asset manager to provide a solution is a shame, whether it is simply a failure of imagination , an issue relating to regulations or something more sinister, I do not know but the roaring silence about the “Retirement Bridge” is getting louder.

For all the calls from the NAPF, the ABI and the likes of Ros,Stephanie,Alan Higham,Tom McPhail Frank Field and Gregg McClymont each week another 10,000 or so annuities are purchased, many of them at the wrong rates and this is what the ABI have decided must stop.

I have written 73 blogs on this subject since 2009 and will write many more. The current disaster that is happening week after week under our noses is avoidable (with alternative products), can be mitigated (with available advice) and is preventable (with proper regulation).

It takes a crisis for the ABI to point a finger at its own members as it did earlier this week. Three cheers to them and particularly Otto Thorenson who has personally appeared on the radio to reinforce the message.

The whole sorry tale has been till now, characterised by temerity and inaction, let’s hope with the momentum built by all that has been written and said, not least by Ros Altmann, that we will have some genuine progress on all three fronts.

This article first appeared at

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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1 Response to Three cheers for the fearless ABI

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