Insurer greed and self interest may wreck UK pension revolution

Published:  5 Nov at 6 PM
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The UK government’s reversal of the purchase of compulsory annuities signalled a welcome sea change for expats as well as UK retirees, but risks being derailed by intransigence between insurance companies and policymakers.

All sides in the increasingly volatile debate over the application of the new rules are protecting their own profits and interests and no single organisation is working on behalf of the consumer. The feared result is that rogue advisors and greedy product providers will win out, with pension savers at more risk of losing their investments than ever before.

For decades, insurers have been lining their and shareholders’ pockets with massive profits from pension savers who simply agreed to the first deal offered by way of so-called ‘wake-up’ packs. These documents, mailed to all retirement savers, are deliberately confusing and complex in the way in which they set out projected incomes from pension pots.

Many thousands of UK and expat retirees now realise they chose the wrong home for their life savings, and most were never informed that they could shop around for the best deal. Despite the new rules, identical ‘wake-up’ packs ignoring the changes are now being mailed to those due to retire after next April when the reforms kick in.

Free advice is being provided by government-appointed FAs, but the scheme is poorly publicised and only three per cent of those entitled are planning to use it before making an investment decision. Expats find themselves in an even more vulnerable position, as the advice is only available to UK residents.

The tricky issue of longevity calculations is another minefield, with little real advice being given and pensions experts recently claiming that even the way longevity is calculated is open to abuse. The risks of simply cashing in and investing your entire pension pot are threefold, involving the effects of inflation on savings accounts, the instability of investing in tracking funds and capital losses caused by insurers’ high fees and poor fund performances.
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