Pensions Bill

moved Amendment No. 76: 76: Before Clause 123, insert the following new Clause— ““Annuities: form of consent A provider of a pension scheme must not sell an annuity unless the purchaser has signed a form of consent, to be prescribed and kept under review by the Financial Services Authority, so as to ensure that the purchaser is fully aware of the options available to provide best value annuities in relation to matters including, but not limited to— (a) ill health, (b) employment, (c) smoking, (d) place of residence, (e) inflation protection, and (f) any dependents’ benefits after the purchaser’s death.”” The noble Lord said: My Lords, this is a straightforward amendment designed to make it crystal clear to both buyers and sellers of annuities that the full range of options must be available, including enhanced annuities. I am old enough to remember that they were called impaired annuities when they first came in, but that was before the insurance company marketing departments got to work and decided to put a rather more favourable spin on them. There is an important fundamental point here. Initially, this started when companies offered better rates to smokers or people with diabetes or cancer, but many people are now able to benefit from the fact that there is an enormous discrepancy in life expectancy, even within cities. For example, in Glasgow compared with Bearsden, which is literally five miles away, there is a difference in life expectancy of more than 10 years. The same is true in Sheffield, as my right honourable friend Nick Clegg has pointed out. The real scandal is that, because people are not properly advised by their insurance companies of their options when they come to buy an annuity, only a quarter of those who would be eligible for these best-value insurance annuity products currently buy them. Some 500,000 people retired in Britain last year and more than 400,000 bought annuities, but the best estimates are that people who did not take advantage of this option lost about £1 billion in pensions. That is a sophisticated industry ripping off some of its most vulnerable customers. It is cheating them out of a chunk of their life savings, in many cases, in a way that cannot be rectified. Once you have bought your annuity, that is it for life. The insurance industry has been making some changes. The Association of British Insurers, partly under pressure from some effective journalism and obviously from speeches in this House and another place, has moved to some extent. But I do not believe that it has moved enough. I have had useful meetings with Legal & General, the leading provider of annuities and the biggest annuity supplier in the field, which would be happy to see more specific requirements for these options to be made available to people. I have not discussed the exact wording of my amendment with Legal & General, but it would prefer to go further than the rather general guidance coming from the Association of British Insurers. In drafting this amendment, I have tried to place the responsibility on the Financial Services Authority, not necessarily to draft the form, but to approve a standard form that all insurance companies must show people buying an annuity, and people have to sign to say that they have read it. If not, people will not have the proper confidence that they have been given those options. We have to face the fact that a commercial issue is involved. By doing this, insurance companies may lose business by having to say, ““You could do better elsewhere than the rates we are offering you””. There is a hard commercial issue here, but given the fact that the insurance companies are sophisticated and that consumers are not, a serious issue of consumer protection is involved. We believe that this is the right way to ensure that this rip-off—and I say that advisedly—does not continue. I beg to move.