A market-orientated solution to the problem with annuities

Leading pensions expert Michael Johnson highlights the public’s growing awareness that the annuity market is “opaque and unfair” and “toxic”, and deprives retirees of up to £1 billion of income each year in a new Briefing Note, A market-orientated solution to the problem with annuities, published on Wednesday 29 February by the Centre for Policy Studies.

Johnson argues that the public’s growing disillusionment with annuities has been fuelled by low annuity rates, due to low interest rates, poor investment returns (over the last decade) and increasing longevity. In addition, the lack of annuity contract standardisation (which renders price comparison websites useless).

In response, he suggests that the industry should establish a new annuities clearing house; essentially, a marketplace in which all annuity providers participate. Providers could then bid, daily, for the annuity business, with unsold annuities being retendered the following day. This process should introduce pricing tension and the transparency that is currently lacking. Individuals would then have the information they require to choose the particular annuity which best suits their needs.  If the industry failed to do this, then the government should step in.


To view media coverage of the note, visit our media impact page.

Michael Johnson - Wednesday, 29th February, 2012