The government has outvoted a Labour amendment that would have required individuals to seek broker assistance before buying an annuity.
Labour pensions shadow Gregg McClymont’s amendment to the Pension Schemes Bill would have required auto-enrolment qualifying pension schemes to ensure retiring members had access to an independent brokerage service before they bought an annuity.
Pushed on what the cost of such a scheme would be, McClymont said schemes could set up similar arrangements to those established by Nest and Royal Mail, which cut bulk deals that reflect the nature of their membership and achieve better rates through scale.
Pension minister Steve Webb rejected the idea, arguing there might be situations where an individual might be stopped from going to the home provider who had a better rate. He also said that having such a service alongside the guidance guarantee could confuse retirees.
Coalition MPs argued that the amendment was not necessary because the obligation to buy an annuity has been removed. Labour argued the service was needed to ensure that those who still did buy an annuity would get the best possible deal.
The committee voted 10 to 5 against the amendment.
McClymont said: “Annuities, as they are currently constituted, have not been delivering value for money for the whole of the market—for every saver who chooses to annuitise or who is forced to annuitise as things stand. The reason is fundamentally that half those coming to the point of annuitisation—turning their pension pot into an income—do not shop around for the best deal, because it is a complex and confusing process. First, because of that, and, secondly, because of getting the advantages of bulk buying by a professional expert, a pension scheme, to do that crucial aspect of retirement income planning—if someone is taking out an annuity, the fundamental aspect is to get that right—it seems sensible to empower pension schemes to do that. The new clause draws on best practice, and we think it would be sensible for the Government to accept it.”
Webb said: “The new clause is stuck in a time warp. Just at the point where annuities are no longer compulsory, the Opposition want to put an annuity broker into primary legislation. We will have a guidance guarantee. Someone will reach an age at which they are interested in doing something with their retirement pot. The Government will write to them about a guidance guarantee. The scheme would tell them that they could not take an annuity unless they had spoken to an annuity broker. That person might be well served to talk to an independent financial adviser, because an annuity might not be the right thing. All those different people could be telling them different things, but the one who had the power would be the independent annuity broker, because if the person wanted to stay with the people they were with, his word would be law. That seems a muddled, backward-looking way to do things.
Nest only searches a limited number of people on its panel. It is not the same as an independent annuity broker who would no doubt charge for services; Nest does not charge for access to the annuity panel. I do not think that is what Nest does, to be fair to the hon. Gentleman.I am not convinced that that is the way forward, nor am I convinced by the hon. Gentleman’s claim that how Nest operates is analogous to his proposal. NEST has an annuity panel, so it has a number of providers who will give annuity offers. However, Nest only searches a limited number of people on its panel. It is not the same as an independent annuity broker who would no doubt charge for services; Nest does not charge for access to the annuity panel. I do not think that is what Nest does, to be fair to the hon. Gentleman.”
Conservative MP Nigel Mills said: “If someone’s pension scheme was offering the best annuity in the market and the law said that it could not sell to its customers, those customers would not be highly amused that they could no longer get the best annuity.”
Partnership Assurance Jim Boyd says: “The Retail Distribution Review has led to a situation where less wealthy people who would have got access to advice in the past are no longer doing so. And here we have Gregg McClymont calling for something that would have led to large numbers of people getting the best possible of outcomes, and the government is rejecting it out of hand. It is very disappointing to see what is a very positive idea, that puts the consumer at the heart of the process, rejected in this way.”
Labour’s proposed amendment to the Pension Schemes Bill that would have required individuals to go to an independent broker before buying an annuity
(1) A qualifying money purchase scheme may not sell annuities directly to anyone who has saved with the scheme unless this is the recommendation of an independent annuity broker. A relevant scheme may provide an independent brokerage service itself. A self-provided annuity brokerage service will be considered independent for the purposes of this Act if the provision of its services is subject to the direction of independent trustees.
(2) Pension schemes shall ensure that any brokerage service selected or provided meets best practice in terms of providing members with—
(a) an assisted path through the annuity process;
(b) ensuring access to most annuity providers; and
(c) minimising costs.
(3) The standards meeting best practice for annuity brokerage services shall be defined by the Pensions Regulator after public consultation.
(4) The standards set out in subsection (3) shall be reviewed every three years and, if required, updated.—(Gregg McClymont.)