Monday, March 10, 2014

Annunities: are they so Bad? AMNT Open day 2014

The answer is of course YES. A little late but this post is from the AMNT (Association of Member Nominated Trustees) open meeting held in London last month. 

Rob Yuille (picture) from the Association of British Insurers (also known as the ABI or more simply by those in the know as "the enemy") defended pension annuities. 

The well known left wing revolutionary rag "The Daily Telegraph" in a recent editorial called for everyone to be given a cheque when they retire for the full value of their pension fund instead of being forced to buy annuities from insurance companies.

Rob made a valiant attempt to justify annuities and to be fair they do have their strengths such as being secure, personalised, with options and apparently good value compared to international alternatives.

The weaknesses of course are legion but even Rob accepted that they can be expensive, inflexible, confusing and dependent on uncertain market gilt yields. The current returns are of course pitiful.

I pointed out that recently I had tried to help a work colleague who was being made redundant understand what was her pension provision. She was a warden in a sheltered scheme for the elderly but did not understand at all her three different defined contribution pension pensions pots. 

She was just over 55 and for some reason had recently (in her terms) "cashed in" one of her pension pots. She had no concept of protecting her pension against inflation, nor protecting her partner if she died early or the commission she had paid (it was 5% of a £20k pot). 

I think that the current pension system totally fails people like her. I don't think that annuities are at all suitable products for relatively low paid and financially unsophisticated workers.

There is a role for annuities with the wealthy and I think if truth be known, the pension industry does not want to deal with these millions of tiny DC annuity holders. 

The pension annuity market is clearly broken and we desperately need an alternative.  Since the State is (rightly) busy forcing workers to be auto-enrolled into pensions then it has a duty to ensure that they are not being ripped off and sold a dud when they retire.
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