Pensioners should be allowed to switch to better annuities and escape poor-value schemes, Pensions Minister Steve Webb has suggested.
In an interview with the Sunday Telegraph, Mr Webb said that pensioners should be able to change annuities in the same way homeowners can change their mortgage deals. The proposal would prevent retirees becoming trapped in poor-value schemes, as they can do under the current system – described by Mr Webb as a “lottery”.
“When you take out a mortgage, in a few years if rates change you can switch your mortgage,” Mr Webb said. “But when you take out an annuity, that’s it – for life. This could easily be for a quarter of a century.
“Why shouldn’t you be able to change your annuity provider so a few years later somebody else could offer you a bigger pension?”
Mr Webb’s comments have been met with criticism from many in the pension industry.
Huw Evans, director of policy at the Association of British Insurers, said:
“The industry has already launched a review – A New Retirement – to explore changes that could be made to help people get good outcomes in retirement, including how to balance security and flexibility. Whatever the decision people make it is a crucial one and they need help to get it right.
“The Minister acknowledges that the changes he is proposing could have a ‘massive’ impact on the way the market operates. Some of these changes could be negative and some positive but it is important that they are well thought through. The industry is keen to contribute fully to the thinking on how we can make the retirement income system work better for savers.”
Other reforms Mr Webb is considering include:
- Help for pensioners with health conditions or people who have worked in risky industries to get better deals
- More mixed pension arrangements which would combine annuities and investments
- A ‘collective pensions’ system where savers contribute to the same ‘mega fund’.