What is your pension really worth?

‘What’s Your Pension Really Worth?’ will be screened on Channel 4 at 8.00pm this evening.

Apparently the programme will examine the annuity market with a claim that “mis-selling of annuities could be at least as big as the mis-selling of payment protection insurance”.

Contributors to the programme including Pensions Minister Steve Webb will also claim that insurance companies are making excess profits from these plans and exploiting the fact that people do not shop around for the best rate and are being kept in the dark about their right to shop around for the best annuity rate.

There is little doubt that the annuity market is made up of both competitively priced and expensive annuity rates; it always has been.

Consumers should definitely seek independent advice about the best rate for them although many clearly do not.

They should also consider the other options that are available to them such as deferring the purchase of an  annuity, using the tax free cash lump sum available to them to fund ‘tax free income’ for a number of years as well as considering alternative mechanisms such as income drawdown.

A pension plan holder with a poor health history should, without a doubt, seek advice about their entitlement to enhanced annuities which will reflect the fact they may have a shorter life expectancy than the norm.

The problem though with TV programmes like this from Dispatches is whilst they might encourage some people to shop around and consider their options, many might see the report as simply another excuse for inaction.

My post last week set out some of the reasons why annuity rates are so low at the present time and one to consider is Government policy, in-particular quantitative easing or QE.

This has caused the price of government stock (Gilts) to rise and the yield from these Gilts to fall. Annuity providers are forced by government to match their annuity liabilities by buying  suitable assets, namely Gilts.

There is no excuse for providers offering very poor annuity rates or from discouraging pension plan holders from shopping around for better rates but I will be astonished if tonight’s programme includes a journalist asking Steve Webb to explain the negative impact his government’s policy has had on all annuity rates.

Still I might be surprised. We shall wait and see!

Photo credit