Corporate crime

The occupational annuity process is verging on the criminal and demands an overhaul says Teresa Hunter

He contacts the insurer again, stressing the short-term nature of his prospects, to be told £3,600 is as high as they can go.

His employer is shocked, and orders the in-house scheme manager to do something about it. He appoints an adviser. Not only does the firm still decline to budge, it refuses to respond to any communications from the professional at all.

The act of dishonestly appropriating another’s property with intent of permanently depriving him of it is theft, according to my Oxford English Dictionary. It goes on to define “accomplice” as an associate in guilt or crime.

Now consider, nine out of ten employees take the annuity offered by their employer’s pension company, almost as an expression of loyalty and trust. Consider again that giving £7,200, or £10,800, depending on how long he survives, in return for payment of £140,000 leaves the pension provider with around £130,000 or nearly 90 per cent profit.

Consider finally, that the dying customer and his family loses nearly 90 per cent of this chunk of their life’s savings.

There are many practices within the financial arena that leave something to be desired, but cases like this amount to criminal theft. And anyone involved in advising such schemes at any level should be wary of their liability as an accomplice.

This individual was highlighted in the shocking report from the National Association of Pension Funds and the Pensions Institute at Cass Business School into the annuity transition for members of defined contribution occupational schemes.

It concluded that the market was rife with “sharp practice” and “murky pricing”, very surprising language from such staid organisations.

But as we look to a future where eight out of ten workers will rely on DC schemes for their pensions such shady dealings cannot and will not be tolerated.

What’s to be done about it? The NAPF report suggests greater transparency as the solution. Companies should be forced to publish their internal rates, and retirees should be given more information about shopping around.

“There are many practices within the financial arena that leave something to be desired, but cases like this amount to criminal theft. Anyone involved in advising such schemes at any level should be wary of their liability as an accomplice

They dream of a world where retirees hunt out the best annuity, as confidently as motorists source car cover.

It is a fantasy for anything like the foreseeable future. It overlooks the fact that motor, as a product, is heavily regulated, indeed our only statutory insurance. It forgets the practice motorists get to buy cover each year maybe forty, fifty or sixty times throughout their lives.

When it comes to better information, it ignores the fact that companies would be responsible for disseminating this information, which would effectively rob them of some of their most profitable business.

And we all know how good insurers are at producing information that is clear, easily understood and consumer-friendly.

Indeed, some companies already claim to encourage people to shop around. This amounts to giving them a leaflet, with information on how to find a financial adviser living in their post code. This individual may know little more about annuities than the retiree.

Dr Debbie Harrison, who wrote the report, believes companies and trustees must be obliged to appoint an annuity specialist adviser at retirement, to ensure members maximise their pension savings.

And I would add severe regulation and punishment for anyone involved at this end of the business found guilty of “sharp practice” or “murky pricing”. Let’s hang a few.

Teresa Hunter is a freelance journalist