Annuities for Pensioners

Debate between Richard Graham and Jim Dobbin

Tuesday 7th January 2014 Westminster Hall

[Heather Wheeler]

I am delighted that my hon. Friend called today’s debate because I have received a letter from a constituent, Mr Tejpal Singh of Stenson Fields, who asked me to ensure that the House had a debate on annuities, so a new year resolution has been kept. Mr Singh’s point was that people were given specific advice to save and were given to understand that when they took out an annuity at a specific age, the return would be £10,000 or £7,500 a year, but they are lucky to get £4,000 or even £3,000 now. That is difficult for people who have done the right thing on this important cost-of-living issue, but then the market has collapsed. I wonder whether the advice that my hon. Friend is referring to could help with that.

[Jim Dobbin (in the Chair)]

Order. Interventions should be short.

[Richard Graham]

I am grateful to my hon. Friend, who raises an important point. There is no doubt that annuity rates have dropped sharply from 10% to 5% over the last few years. Rather like charges on pensions and on investment management generally, it is only when a market becomes more difficult that it becomes more important to shine a light on charges and commission structures, because they become a much higher part of the total cost. If someone’s significant pension pot does not generate a significant income, they want to know where the money is going. My hon. Friend is absolutely right to raise that issue, which has propelled the annuities issue on to the front pages of newspapers from the business and financial sections.

I must sound a warning to the Opposition. We have heard from them over the last few weeks and months a sudden and dramatic cry that something must be done urgently. That rather prompts the question why they did so little during their long 13 years in office, with almost as many pensions Ministers. Some of the issues have been around for a long time. I am pleased that the FCA took up the issue of annuities relatively soon after its birth, put its consumer panel on the case and has now come up with research showing, I think without further question, that the annuities market is not working satisfactorily.

I want to make three points to clarify the matter. First, the annuities market is no longer working for many people in this country. It needs to be reformed, and if that is to be useful, it should be welcomed by everyone in the industry; otherwise, annuities will have no real role in future financial planning. Secondly, the opaqueness of the market stands in stark contrast with the increasing amount of light in the pensions industry as a whole and is therefore more of an anomaly than it was. Thirdly, the reports now coming in from regulatory bodies provide the Government with a wonderful opportunity to do something that millions of people throughout the country would be grateful for and reform an imperfect market so that it works much more effectively than at present. It falls to our Government to have that opportunity, and I hope we will seize it in the remaining 18 months of this Parliament.

--- Later in debate ---

[Richard Graham]

The hon. Gentleman’s earlier reluctance to give way is uncharacteristic, especially as 45 minutes were left in the debate for Front-Bench spokesmen. He has two or three times confused issues, especially on my exchange with my hon. Friend the Member for Warrington South about nationalisation. My hon. Friend clarified that and explained that he was looking for participation in the market, not domination of it. Members on both sides of the House have an opportunity today to express their views and reach a consensus; the review by the Financial Conduct Authority and the consultation by the Department for Work and Pensions provide an opportunity for the House to move forward on an issue of concern to all our constituents. Does the hon. Gentleman agree? He should surely reach for consensus, not political division.

[Jim Dobbin (in the Chair)]

Order. I remind hon. Members that interventions should be short.