Saturday, January 04, 2014

Pensioners being ripped off

A good article here on the arguments put forward by "pensions campaigner and former government adviser Dr Ros Altmann" that pensioners who buy "annuities" when they retire are being ripped off.  Annuities are insurance products that you buy when you retire using the money you have saved while at work in a DC (Direct Contribution personal pension) scheme.

"The Financial Services Consumer Panel, which monitors the FCA, recently published a report after a 12-month study into the annuity market. Investigating 15 online firms, and using a £49,950 pension pot example, minus a 25% lump sum, it found fees for the same service went from 0.75% to 3.35%, with costs ranging from £281 to £1255".

Not only fees but annuity "rates" (how much you get after fees) in some companies (even well known ones such as the Pru) are simply rubbish. Even the better schemes offer poor value due to the current price of government bonds called gilts which determine how much you get from annuities.

I am pleased that she highlighted that most annuities are "single life" only. That means unlike Defined benefit pension schemes that cover partners automatically - with a "single life" annuity when the retiree dies - his or her partner get nothing.

In my workplace most employees are in a DC scheme. I dread the day that I will called to see the spouse of a retired union member who wants to know what will they now live on? That day will come very soon.

What was not mentioned is how most people also buy a "level" annuity when they retire. This means  that there is no protection against inflation so each year their pension is worth less and less.

According to this site if you retired 5 years ago inflation would have reduced the value of your level pension by nearly 14%. If you retired 10 years ago by a staggering 30%.

What a mess. Pensioners are being cheated by excessive fees, poor returns and no protection for their loved ones or against inflation.

We still desperately need modern collective Defined Benefit pensions for all.

Hat tip Dave Watson via UNISON Weekly News.
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