Labour has called for all DC members to be automatically referred to an independent annuity broker when they reach retirement.
Labour pensions shadow Gregg McClymont MP made the call in response to an NAPF report into the annuity process that suggests employers are often too scared to go beyond the legal minimum in helping them at retirement because of unfounded fears legal comeback against them.
The report also suggests those working for smaller employers or with smaller pension pots are most at risk of poor outcomes because of the costs to their employers of setting up guidance and advice services, and because smaller pension pots are less profitable for advisers and brokers.
McClymont wants to see all DC retirees referred to an execution-only annuity broker at the very least, if full advice is not offered.
The NAPF prefers to explore greater communication of the options open to employers and employees on at-retirement issues, improved training of trustees. It will also consider the establishment of a shortlist of approved brokers for trustees and employers or the development of a master-arrangement for advice and broker services for DC schemes.
McClymont says: “More and more people are waking up to the scandal of annuities rip offs, but Ministers are still sitting on their hands. This Tory-led Government has brought forward a pensions bill that is just half a reform.
“Ministers must now act on private pensions and ensure that there is fairness in the system – including in the purchase of annuities. It should be part of the duties of pension schemes to direct their savers to the best independent annuity brokerage service available or to offer such independent brokerage services themselves.”
NAPF head of research and strategic policy Mel Duffield, says: “Too many people are still at risk of failing to make the right choices and get the right shape of annuity at the best price. As they approach retirement what they really need from their employers is more support and advice. But at the moment there are market barriers that stop that happening more widely.
“People should automatically shop around for the best annuity when they retire, and employers and pension trustees can do more to make this happen. Whilst insurers are getting better at communicating with savers, it is still the case that hundreds of thousands are failing to obtain quotes and compare prices in the market.
“The decisions around how to turn a pension pot into an income in retirement are baffling. Savers need help from an independent source to ensure they understand the options and make sensible choices.”
Hargreaves Lansdown head of pensions policy Tom McPhail says: “The NAPF have now grasped the importance of shopping around for members of occupational DC schemes. The NAPF say that trustees and employers are failing to give their members good outcomes in the mistaken belief that it could create a liability whereas in fact the opposite is true. They also cite that advisers to trustees and employers often lack the solutions required.
“However, guided non-advised annuity services are popular and work extremely well. The NAPF should follow the ABI’s lead in requiring its members to offer members access to a shopping around service. In our view there is an opportunity to put forward an amendment to the Pensions Bill to ensure all members of auto-enrolment schemes have access to good shopping processes.”