“Annuities George, what took you so long?”


So Rachel Reeves has “looked at the detail” and is coming behind the Government’s proposals for annuities. This is as it should be.

  1. But there is another issue for an opposition which is every bit as important. The bold move announced in the budget came in March 2014 and will only be implemented from April 2015 (with interim measures which are semi-satisfactory).

But what of the 1.5m people who purchased annuities over the first four years of the coalition?

There are 164 blogs here on annuities , the earliest in 2009 (you can read it here). In almost every blog I call for a reform of a system that isn’t working and hasn’t been working for many years.

There are five main contributors to the problem

  1. A dysfunctional “at retirement” advisory capacity which has meant people have been purchasing the wrong stuff, at the wrong price since the advent of mass market personal pensions
  2. A complicit group of insurers who have happy to live with a system from which they profited. Too often they ignored the instruction to “treat customers fairly”.
  3. Over-regulation as a result of the implementation of Solvency II which has delivered security at the expense of return
  4. Silly tinkering with annuity underwriting resulting from the Test-Achats case that cause us to treat men and women as living the same amount of time (which on average they don’t)
  5. The artificial depression of annuity rates by Quantitative Easing that have made annuity rates a “rip-off”.

All of these five have meant that we now have a market with only three recognised players- Canada Life , Aviva and L&G offering competitive rates, all other insurers referring business to these three and a secondary market in impaired life annuities for those prepared to divulge their health and lifestyle deficiencies.

It has meant that no alternative to annuities has been built. Alliance Bernstein’s Retirement Bridge is still not ready- three years after the idea was launched and as recently as last month, the ABI were doing their best to scupper any plans for a collective alternative to annuities.

Faced with what seemed insurmountable problems with annuity reform, the Government has chosen to simply “waste” the market by abolishing compulsory annuitisation and seeing what the market can come up with as an alternative.

But this is of no comfort at all to those who have bought annuities in these years.

In 1945, our fathers and grandfathers and great grandfathers came back from the war and set about re-populating Britain, their sterling efforts between the sheets (pre-duvet) resulted in us lot and and as all this was around 65 years ago, the first (and biggest) wave of baby-boomers reached state retirement age between 2005 (women) and 2010 (men), the 1946 cohort a year later and so on.

So you can see that the last five years have seen the biggest bulge in retirees, this country has ever seen.

What have they retired into?– into the worst annuity rates this country have ever seen.

What help have they got? – a dysfunctional advisory system with what Frank Field has called a cartel of non-advisory annuity brokers who have behaved contemptibly.

What we have witnessed in the last five years has been a train crash. We don’t hear the cries of the injured or of the relatives but we will do. Those who have annuitised of late are spending their tax-free cash. But when the cash runs out and inflation kicks in, the level annuities they have purchased (often with little or no protection for spouses) will leave them cruelly short of income.

We have failed

We have failed this generation of retirees and it has been on our watch. 164 blogs failed to get the Government to take timely action.

While we can be happy for people like me who have not reached the point when I want and need my money, we need to give some thought for the 1.5m annuitants who could not defer but were impelled or compelled to annuities FAUTE DE MIEUX.

I feel my 164 blogs provide me with some personal indemnity, I did my bit and shouted loudly. It is not pleasant to be laughed at and scorned  by the insurance company thought leaders who continued to promote guaranteed annuities. It will be pleasant to laugh back at them as they shift their positions to try and salvage something from the wreckage.

And make no bones about it, this is a disaster for insurers who until Wednesday morning had thought they and the Treasury were good friends.

To me the most surprising thing about the budget announcement, was that it showed the Treasury is not in the ABI’s pocket. It showed that the public good is greater than the short-term drop in revenues arising from the fall in profits from insurers no longer milking the annuity cow.

My message to Rachel and Gregg

So if was Rachel Reeve or Gregg McClymont, I’d be spending this weekend reading this blog and some of the 164 others (just search on annuity) and I’d be asking this Government one simple question


Thanks to Phil Bray and the Adviser Lounge for this




Dail Mail Annuity

This post first appeared on www.pensionplaypen.com

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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5 Responses to “Annuities George, what took you so long?”

  1. andyjags says:

    I do of course agree that action on the at and in retirement for DC pensioners has been too long in coming.
    A function of the division of government departments along the same lines as the division of accumulation and decumulation, with similar challenges.
    However throwing in the towel because the annuity market is dysfunctional and relying on guidance and advisors is high risk (to put it politely). If guidance was all that was needed we would not need auto enrolment (and admit that we are relying on lethargy to keep people in).

    I don’t suppose the drop in insurers profits if they lose he assets is probably nothing compared to the extra tax take on he lump sums.

    Why not extend the logic to the NHS and state pensions. I have paid in for years. I am at retirement. Can I have my entitlements commuted to a lump sum, please. I will accept the mortality/ health risk with a little guidance and advice.

    • henry tapper says:

      No you can’t have your DB settlement as a lump sum, AndyJags!

      Hilary Salt’s blog and your very sensible comment are the necessary counterweights to the prevailing zeitgeist that is sweeping away the DC retirement income infrastructure.

      If the civil servants in charge of pension policy had listened to the public and brought about incremental change, we would not see this dambusting measure. But they didn’t and they smugly tinkered while those not lucky enough to have your DB pension (which we paid for) were stuffed.

      You can’t commute your DB pension because it is not in your interest to do so. I’d shut up about it if I were you, you lot don’t know how lucky you are.

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