The FCA have reported after their thematic review and told us what we already knew, the annuity market is not serving those who are buying annuities.
Has this review anywhere to go? Micky Clarke on radio 5 live this morning fumbled with the difference between between Government interventions the charge cap, the annuity market , goodness knows what. Michelle Cracknel struggled to get across her point , some fellow from Killick and Company struggled to promote his firm’s attempts to close the advice gap formed by the RDR.
Having listened to this morning’s debate, everyone wanted to deal with the problem as an issue of distribution, as if purchasing an annuity was as inevitable as getting out of bed in the morning.
The problem for Micky and for just about everyone but the coterie of financial services professionals who profit from the current system, is the public don’t want to go shopping around for annuities. They would rather leave this decision to a trusted expert. That’s what they do with National Insurance, that’s what they used to do with their company pension and that’s what they’d like to do with whatever they’re paying into now.
Why don’t we start this debate, not by looking at how to fix the system, but why we ever came to think that individuals were better off buying a pension for themselves in the first place.
I haven’t read the FCA publication, frankly I don’t want to. I don’t think we needed a thematic review to tell us what we all knew already. we need a review into pension policy that asks ourselves why we are where we are and what we can do to improve things.
We have a perfectly functional state pension system that works efficiently and though it has been a political plaything for generations, is still fit for purpose.
We have defined benefit company pensions which languish beneath the yoke of mark to market accounting but struggle on like sturdy oxen.
And we have the new DC workplace pensions which , no matter how hard we work on the accumulation side, waste a good proportion of their output on a system of pension purchase that is not understood, not properly used and which produces results which can only be described as disappointing.
The market failure is not one that the FCA can address. It can only be addressed through a proper national debate on risk and reward.
We need to ask ourselves how much certainty we require in retirement and how we want to organise our pensions. If we want no risk and want to organise around the insurance companies then we should continue with the current system.
If on the other hand, we are prepared to live with less certainty and want to organise our private pensions on a collective basis, we should return to the system that prevailed prior to the introduction of guarantees and solvency rules that have all but destroyed occupational pensions.
And if we don’t want either, we should put this matter on a truly collective basis and simply purchase more state pension with our pension savings.
Who takes the risk and how? These are the questions that we should be having a national debate about. The ever increasing confusion about annuities will continue indefinitely unless we define what underpins the conversation, what the real choice facing Britain are.
I will carry on banging the drum for this debate to happen, This blog will continue to argue for more strenuous debate and for thinking that goes beyond the vested interests of those who produce and sell annuities and alternative retail products,
At some point, someone will listen. Shopping around is the best thing we can do today, but it is not the solution to the problems with purchasing pensions with our money.
Henry aren’t we already able to do this?
We could choose to purchase any asset outside of any pension arrangement without the need rouse life companies or be required to purchase an annuity or even be restricted by the gad rates provided by the government.
What about the loss of tax relief is probably the response. But hey you can’t have it both was can you.
I think the fundamental problem is that as individuals we just don’t prioritise retirement enough and therefore don’t save enough for it.
Ask your average 30 year old how big their retirement pot is pensionable and non pensionable you are likely to get a blank stare.
Things went wrong in the occupational pension world with changes to excess pots driven mainly by the unions to return money to employees as opposed to store it in pension funds to cover the bad times.
But it th America unions that are now bleating on about how bad pensions have become.
Like you I think there should bea debate about pensions but let’s make sure that the truth is known.
I also think that th individual is responsible for their own retirement planning and this hands out benefit culture and he state will look after us is not a sensible path to go down.
Mark – sure, cute (financially aware and well-advised!) cookies can do this already, and it can work well for them. But that pretty well applies to these famous HNW clients, not Joe Average finding he’s hardly got a £20K (pension) pot to piss in when he reaches his 65th birthday.
I agree with Henry that we need to change what is the norm in providing for retirement, rather than trying to increase the size of the (maybe) 5% financially literate population.
I sense from your final paragraph that we might not agree with each other over this, but if you want to address a national issue I reckon you’re wasting your time with the landed gentry (as it were). IMHO.