Annuities for Pensioners

Steve Baker Excerpts

Tuesday 7th January 2014 Westminster Hall

[Mr Hoban]

My hon. Friend is absolutely spot on. We need to ensure that there is a more retail-type approach. One reason why people are able to shop around and compare mortgages is that there is good-quality information out there.

It is easy to compare the different rates on mortgages and the monthly payments people will make on different mortgages. The charges are very transparent as well. We can learn things from the mortgage market and its transparency that can be applied to the annuities market. I do not often disagree with the pensions Minister, my hon. Friend the Member for Thornbury and Yate (Steve Webb), but I am not entirely convinced that being able to trade in annuities will work and be effective. There are some comparisons with the mortgage market that we cannot necessarily draw.

Finally, I want to make a broader point. Over the course of the past decade, there has been quite a lot of focus on, to use another bit of jargon, the accumulation phase—what happens when people build up their pensions savings. The previous Government commissioned Lord Turner to look at pensions. I think there was some dispute between Tony Blair and the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) about whether Lord Turner’s recommendations should be implemented, but they were, with cross-party consensus. There is considerable consensus over the introduction of the single-tier pension. One area that we have not debated in enough detail today starts that process. What happens when people spend their pension pot? What choices are available to them?

My hon. Friend the Member for Gloucester talked eloquently about an asymmetry of knowledge between someone seeking an annuity and an annuity provider, and about the circumstances that people face. Alternative products, such as income draw-down products, are out there, but that transfers both the investment risk and the longevity risk to the investor—the pensioner. We need to look carefully at the products out there, recognising that this very polarised market, with annuities on the one hand and draw-down products on the other, may not necessarily be in the interests of consumers. Other alternatives might be out there.

[Steve Baker (Wycombe) (Con)]

My hon. Friend is making his points with typical perspicacity. Before he concludes, will he consider what I think is one of the biggest factors in the market—the role of the Bank of England, both in terms of what it does to savers and what it does to the annuities market?

[Mr Hoban]

We were not going to get very far in the debate without that being mentioned; I am surprised that we got to four minutes past 10 before my hon. Friend raised the role of the Bank of England. I do not want to digress too much into that, but the Bank of England’s research into the inpact of quantitative easing on the pensions market demonstrates that there are upsides and downsides—that QE has stimulated the economy, and that has improved the value of equities as well as having a potential impact on gilt yields. However, let us leave that to one side.

We are moving to a situation in which people coming up to retirement will have a number of different sources for income in retirement. Those may be part-time work, equity in their houses or ISAs. There will certainly be a DC pension pot and there may be a DB pension. People’s income sources and needs will change over their retirement. Given that we are all expected not only to work longer, but to live longer, we will have choices to make. We need a proper debate about how we equip people for that post-retirement phase and how they can have the information they need to make the right choices—not only about what costs they will face in retirement, but about how to maximise their income in retirement.

Annuities are an important part of the market, but they are not the whole of it and we need a bigger debate to look at what is happening. That debate needs to involve not only pension companies and fund managers, but representatives of those in retirement, as well as those approaching retirement. It needs to ensure that the regulators—the FCA, particularly—are involved, as well as the Money Advice Service.

It is important that we get the issue right, because if we do not, many of our constituents will enter retirement with a lower income than they expect—perhaps lower than they feel is necessary to meet their financial needs. That is not good for them and it is not good for us. This debate has helped to spark a much wider process of debating how we ensure that people approaching retirement get the best financial deal possible.