Why it should always be cheapest to buy pension from the state


Much as I like Tom McPhail, his current campaign against the Government for selling rights to the state pension cheaper than rights to private pensions is fatuous.

Tom has it in his head that the Government Actuary is setting the rates at which we will be able to top-up our state pension as part of a great conspiracy against the private sector.

When of course the reason that private sector annuities are so unpopular is that they cannot match the efficiencies of the state!

Issuing gilts is what Governments do, and issuing gilts which include some longevity insurance is not that hard. Just go to the Office of National Statistics and check when people are living to, draw a line through changes in those rates (over the past 100 years) and Bob’s your uncle, you know how to price your longevity gilt (which is what a pound’s worth of state pension is.

Think of the Government as a factory outlet which operates on a not for profit basis and you get why buying from the issuer of gilts, rather than from someone multiple  intermediaries away from issuance, is always a good idea.

The Government has not signed a non-compete clause with Hargreaves Lansdowne

– or with the rest of the Financial Services industry for that matter!

It is the Government Actuary’s job to knock out pension at a factory gate price which properly reflects the interests of all tax-payers, those on the sell and buy side.

It is not GAD’s job to stand behind the carthorse and sweep up the manure.

The state should sell rights to the state pension because it can, because these rights are necessarily good value and because people have far too much cash in retirement (mostly as a result of pension freedoms) and are looking for a sensible way to turn it into an income that lives as long as they do.

Infact, the slogan “an income that lives as long as you do” is so much the best description of what a pension is , that I am curating it to Tom – so he can sell more of his expensive private annuities.

Me – well I wish I could be retiring today so I could be buying some of this nice cheap state pension and even better – deferring my state pension – like all the smart people at the Government Actuary do!


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in pensions and tagged , , , , . Bookmark the permalink.

4 Responses to Why it should always be cheapest to buy pension from the state

  1. Gerry Flynn says:

    I wonder how many people out there will actually be able to afford to buy this additional pension, I suspect a small minority. Baroness Spurs is quoted as say it would be ideal for women who paid “Married Women’s” stamp, is she having a laugh? My wife paid said “stamp” and she cannot afford to purchase additional State Pension and to add insult to injury she is also going to have to wait even longer before she can claim her State Pension.

    “people have far too much cash in retirement”, really Henry and where do you draw that conclusion from? According to all the stats that have been released the average is £30K, (please correct if lower), and how much will they have left after they have paid off mortgages, CC debts etc, they are not going to pay it to the Government.

    Yet again this is something that is aimed at the “Wealthy Pensioners” not Mr&Mrs Average.

  2. henry tapper says:

    Very good Gerry, as for ~far too much cash in retirement- I mean compared with the need for income later on.

    I know there will be a lot of people who will cash out their pensions just to pay off their debts but that is not everybody. ONS stats suggest that most people reach retirement with some savings that are supplemented by cash from the pension .

    Anyway- you are generally right- this article is for the more affluent

  3. Mike Atkin says:

    Right on Mr T.
    They have been well and truly rumbled on the annuity fiddle and now they are crying wolf.
    Some of these people are so far up their own backsides they will never see any daylight – other than that, I have no opinion on the subject 🙂

  4. Nigel Hawkes says:

    The efficiencies of the state! There’s an expression you don’t hear very often. Annuities were poor value because they were compulsory(state intervention). Now the market is being allowed to operate annuity providers will have to offer a competitive product.

Leave a Reply