Steve Webb, the pensions minister, has said that the impact of people retiring later could be offset by increased sales of enhanced annuities. He said that enhanced annuities were the great ‘undersold merit’ of the move away from defined benefits to defined contributions pension schemes. He said that those who will lose out because of a later state retirement age would get a better deal from their annuity, as they would be more likely to have an illness/ailment that would qualify them for enhancement. Typically someone who qualifies for an enhanced annuity can expect an increase in their annuity income of around 25%, though in some circumstances where the individual has a serious medical condition the rise can be as much as 40% or more.
As well as the assertion over the impact of higher enhanced annuity sales, Mr Webb also passed comment on the talks between insurers and the EU over how much capital they will have to hold in order to to comply with new Solvency II regulations. The insurers are working to ensure that the mechanism known as ‘matching adjustment’ is excluded from the new rules. They argue that including it would mean that insurers woud have to take into account market volatility, even in cases where they were not directly exposed to it. This in turn could have the knock on effect of forcing annuity rates down by as much as 20%. However, some have argued that this figure of 20% is scaremongering and that the real fall would be much less than this. Mr Webb said that he backed the attempts to get the mechanism excluded saying that…”…we are convinced a proper impact assessment would reveal it to be wholly inappropriate, deeply damaging and answer to a question that does not need to be asked.” He reinforced his commitment to helping those with small pension pots which often suffer because advisers and insurers struggle to make any money from offering advice to people with small funds.
Mr Webb also conceded that he was ‘struck’ by recent research from the ABI which showed a majority of savers wished for their pension fund to follow them from job to job rather than being handled by a third party such as NEST.