Retirement industry and government failings costing pensioners £3.3 billion

Friday, 04 December 2009 12:31

A lack of choice at retirement could cost Britain's pensioners £3.3 billion over the next 20 years according to a new study published today.

The study carried out by Oxford Economics for the Pensions Income Choice Association (PICA) claims the lack of good advice and choice on retirement, will cost the Treasury £1.7 billion from pensioner incomes between 2010 and 2030.

PICA is calling for the way people are dealt with at the point of retirement to be changed arguing that new pensioners should get independent advice and a review of their pension options so that they are able to make a decision best suited to their individual circumstances.

It claims only one in three people approaching retirement review their pension options, meaning that the majority stay with their existing pension provider.

It blames a lack of information, apathy, long application forms and difficulty finding another provider willing to provide a quote.

According to the study a 65 year old male and female about to purchase a fixed income lifetime annuity could increase their annual retirement income by switching from the lowest to the highest paying provider by an average of 19% and 22% respectively.

The study, which builds on PICA's recent white paper calling for changes to the way in which annuities are reviewed at retirement, shows that in 2010 alone, failings in the review process mean pensioners will miss out on £13.9 million in pension income or £169 per policy holder.

The PICA also says that ensuring retirees review their options will not only increase consumer spending by £2.1 billion between 2010 and 2030, but would, in 2010, give the Treasury an immediate improvement in its finances of £6.7 million through savings on social security payments and increased income and indirect taxes. By 2030, it says, savings to the exchequer would amount to £1.7 billion

Tom McPhail, chairman of PICA, said: "The change we are proposing would ensure that people can enjoy the best income in retirement from their hard-earned savings. And what's more there would be a benefit to the exchequer's finances and a boost to the economy.

"There is no other measure that will achieve such benefits to pension savers at no cost - these changes should be the number one priority on any government's list.

"To put these figures in perspective, a change to the retirement options process could mean adding more than the value of a TV licence onto pensioner's income in retirement, or pay over one third of the average pensioner's electricity bill."

According to the study 2.5 million, or nearly one in four, pensioners live in poverty.

And with the income sources that many are dependent on now, including the state pension, occupational pension and investment income, under threat the future situation could be far worse.

Moreover, PICA said, with state pensions being eroded, employer pension contributions being reduced as a result of the move from defined benefit to defined contribution pensions and currently the lowest savings ratio in almost 30 years, the situation future for many pensioners still looks very bleak.

Mr McPhail added: "Our study has revealed that, should the policies that PICA is calling for be implemented now, consumer spending will increase. It will have a tremendous impact on the standard of living of an average pensioner, will create jobs and will contribute to gross domestic product. Pensioners, the government, the competitiveness of the pensions industry and the whole country will feel the benefit of these changes."

Recently shadow work and pensions minister Theresa May, promised a Conservative government would scrap the obligation for pensioners to take out an annuity at the age of 75. She also promised a wide ranging review of pension provision stating the Conservatives intended to return Britain to a nation of savers rather than spenders.

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