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November 23, 2021
Pensioners should be allowed to break their annuity contract and shop around for a better deal, the Pensions Minister Steve Webb has suggested.
In an interview with the Sunday Telegraph, Mr Webb said individuals should be able to switch their annuity in the same way that homeowners can change their mortgage at the end of an agreed period.
The Liberal Democrat MP hopes the plans will tackle the ‘murky’ practices among insurance firms and address the ‘hidden charges’ levied by some annuity providers.
Supporters of the proposals say they would allow pensioners to escape poorly performing annuity contracts and provide access to more attractive deals.
‘When you take out a mortgage, in a few years if rates change you can switch your mortgage,’ Mr Webb told the newspaper. ‘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? Why shouldn’t you be able to shop around?’
However, the plans have attracted criticism from the pensions industry, with some experts arguing that switching annuities mid-term could actually drive down the guaranteed income that savers are able to secure with an annuity.
A spokesman for the Association of British Insurers (ABI) said Mr Webb ‘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’.