Annuities for Pensioners

Debate between David Mowat and Richard Graham

Tuesday 7th January 2014 Westminster Hall

[David Mowat]

That is absolutely the point that I am making. It is not a free market, and it behoves Government to do more than they have done so far to get it right.

One approach is to try to make the market work better—that was the subject of some of the points that have been made already. The other way of dealing with it is more dramatic. I believe it is reasonable that the Government think very hard and seriously about providing products that would compete in the market with the industry guys, because, in any event, the principal thing that annuity providers do is match Government bonds. One reason why QE has been an issue is that the industry is buying Government bonds in order to match income and liability. It is a classic middleman thing. It is entirely reasonable for the Government—a Government of either complexion—to look long and hard at that suggestion. I believe that will happen, because we cannot continue with the market abuse that has occurred over the past two decades.

[Richard Graham]

My hon. Friend makes an interesting point on which we will no doubt hear more from the Opposition spokesman, the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont). Does my hon. Friend really believe that nationalisation of the annuities sector is in the overall interest of large numbers of taxpayers, who will in effect see the risk for their product transferred to them?

[David Mowat]

The point that has been made, I think, is that that risk is currently with the annuity providers; that seems to be the implications of that point. If that is my hon. Friend’s belief, it would be reasonable to say that their profits should be transparent, understood and not abusive.

[Richard Graham]

Does my hon. Friend not see that that is precisely the argument for reform? The case I have made is that the opportunity is there. The initial research by the consumer panel provides enough light to justify a more detailed investigation, which is happening. The Government can then make decisions to reform the industry. The mortgage sector was reformed, but the Government are not providing the country’s mortgages.

[David Mowat]

My hon. Friend is right that the Government do not provide mortgages, but they do provide people with interest rate products. There is an analogy with annuities, which are an extremely important transaction. In any event, the industry is an artificial one, because it is driven, as I have said, by tax relief. Annuities are not optional—we can draw down, but, broadly speaking, until very recently, everybody has had to buy an annuity.

By the way, I did not advocate nationalisation. I am advocating that the Government offer a product. They can compete with the existing market, rather like the National Employment Savings Trust competes with the existing market. That is not nationalisation. If the existing market is pricing things in a certain way and making very clever decisions on longevity and actuarial things and so on, it will win, and so be it; good luck to it. However, I suspect that that may not be the case. We must bring trust back. I agree that it is important to make the market work. I floated the point about national insurance because I think that that proposal will have to happen, but I also think that there are a number of things we could do to make the market work better.