MPs demand urgent action on annuities
According to Citywire, MPs have criticised the government and the Financial Conduct Authority (FCA) for not taking action on annuities sooner and have threatened to split annuity and pension providers if value does not improve.
In its annual report on the Department for Work and Pensions, the Work and Pensions Select Committee said while reforms to pension charges, auto-enrolment and the annuity market were welcome, they had been too slow coming, allowing millions of savers to lose out.
MPs criticised the FCA for being slow to act on problems with the annuity market. Earlier this year the FCA published the first part of a thematic review into the annuities market. Although it was critical of poor value in the market and an overall lack of shopping around, it left a more detailed inspection until later in the year. That review has now been scrapped to be replaced with a broader review of the retirement market in light of changes announced in the Budget.
It said: ‘The government and the regulators have had clear evidence for some time that the open market in annuities is not yet working in the best interests of the majority of pension scheme members, many of whom face the risk of substantial financial loss in purchasing an annuity from their pension provider.
‘We recommend that the government and the FCA take urgent action to make the open market option a realistic one for all who purchase annuities, not just the minority who are currently able to negotiate it successfully. We reiterate the recommendation from our 2013 report: that, if improvements in the annuity market do not occur soon, the government might, as a might, as a last resort, have to consider taking steps to separate the function of providing pension schemes from that of providing annuities
Regarding the announcement a 0.75% charge cap for workplace pension default funds, to come into force in 2015, it said: ‘It is disappointing that there will not be earlier progress.
‘We reiterate our view that, at a time when millions of people are already being automatically enrolled into workplace pension schemes, it is vital that they are protected from excessive charges imposed by some pension companies and that the charges which are levied are transparent and comprehensible.’