Jeff Salway: Savers short-changed by pension providers
Those claims typically come from people in the pensions industry, who get more than their share of bad press. But there’s a difference, and one they rarely appreciate, between sensationalising and merely reflecting reality.
Sadly, it’s usually the latter when it comes to pensions. And while last Monday’s Dispatches pensions investigation on Channel 4 came close to crossing the line, sparking yet more complaints about the media dragging pensions through the mud, it showed again just how far the industry has to go before trust in it can be fully restored.
To cut a long story short, the documentary focused on the poor value offered by annuities. It revealed nothing particularly new, focusing on the continued failure of pension providers to treat savers fairly, but it took the issue to a wider audience and put yet more pressure on the industry to put things right.
The industry claims it’s doing just that, and does have recent improvements it can point to. But it’s just not enough. Still too many people default into the annuity offered by their provider at retirement, rather than exercising their right to shop around and potentially get a far better pension income.
People settling for the low rates from providers that don’t compete on annuities – which is most of them – receive a retirement income almost a third below that available from the best deals, according to a comparison service launched recently by the Association of British Insurers.
The fact is that there’s no incentive for providers to offer better rates or encourage shopping around. Only now is the City regulator looking at the profit margins on “rollover” business, where savers get their annuity from their existing provider, but it’s widely believed to be around 20 per cent.
That’s just the tip of the iceberg when it comes to the problems in what is a complex, uncompetitive market that is failing savers. The consumer detriment is staggering: millions of people are short-changed every year when they convert their hard-earned savings into an income they hope will keep them afloat in retirement.
Media coverage of pensions may be negative, and in some cases it is sensationalist. The industry has two choices: it can either complain or it can put its house in order. Sadly, it continues to opt for the former.