MP demands radical ‘NEST-style’ annuity provider

An MP has demanded the government creates a nationalised low-cost annuity provider to protect pensioners from poor retirement products.

David Mowat, Conservative MP for Warrington South, presented a list of five proposals to reform the annuity market during a Commons debate on Tuesday night.

Mowatt (pictured) said retirees are unable to understand all the different types of annuity on the market, do not realise they can access the open market option (OMO) and are dissuaded from doing so by their incumbent pension providers.

This means many pensioners buy annuities which are unsuitable for them, Mowatt said.

He said the government should create a nationalised annuity provider, through which retirees could invest directly in Treasury bonds.

The nationalised provider would be "an organisation that was a hallmark for fairness and best practice".

"The government should consider setting up an equivalent of the National Employment Savings Trust (NEST), specialising in the low cost provision of annuities," Mowatt told the House.

Mowatt also said the government should enforce OMO access via legislation to stimulate competition in the annuity market.

"The government should consider making it illegal for the organisation that administers the saving regime to also provide an annuity," he said.

"We would get new entrants to the market which are likely to be smaller, hungrier and more efficient."

Mowatt suggested the government should at least create a rule whereby any annuity sold must be "signed off by an IFA" to ensure annuity providers do not "rip off the retiree".

The MP added the government should insist the industry creates a few "relatively simple categories" for annuities to improve transparency, taking exception to the number of different types of contract.

"The industry will say that standardisation will limit choice, but they would say that, wouldn't they?" said Mowatt.

Work and pensions minister Chris Grayling said his department fully supports consumers' engagement with the OMO.

He pointed to the work the DWP and the Treasury has carried out with the Association of British Insurers (ABI) and the National Association of Pension Funds (NAPF) to improve transparency in the pensions industry and consumer outcomes.

In particular, Grayling pointed to the ABI's proposed code of conduct that would prevent insurers from including their own annuity rates in wake-up packs for customers approaching retirement.