06 February 2012
Millions of private sector workers saving for their retirement
are stuck with a hugely unfair and opaque annuity system which lops
up to £1bn off pension incomes every year, pensions experts
warned today.
The Pensions Advisory Service today welcomes the publication of
a joint report by the National Association of Pension Funds (NAPF)
and the Pensions Institute (PI) at Cass Business School. The
report, 'Treating defined contribution scheme members fairly in
retirement', found that around half a million people retiring each
year are being short-changed by up to £1bn from their total
future pension income, because overwhelming obstacles stop them
getting the best deal.
The report also uncovered evidence of sharp practice and murky
pricing in the annuity market, putting unsuspecting consumers at a
huge disadvantage.
When they retire, people in the private sector saving in a
'defined contribution' pension - now the most common form of
company pension scheme - use their pension pot to buy a product
called an annuity from an insurer. This gives them a regular income
and is a one-off, irreversible decision that sets the size of their
pension for the rest of their life.
The process for choosing an annuity is a complex one and the
majority still go for the 'default' option by sticking with their
pension scheme provider. This failure to shop around for a better
deal can wipe 30% off their annual pension income, and in some
cases up to 50%.
The NAPF/PI report found that it is too difficult for savers to
get the best deal, and that there is a severe lack of transparency
and understanding about how annuities are priced, especially for
those with medical conditions who could qualify for a much higher
level of pension income.
The Pensions Advisory Service is actively involved in the
consultation processes for these areas of concern, which are
intended to lead to industry reform.
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