Pension Annuities (Amendment) Bill
Ms Gisela Stuart (Birmingham, Edgbaston, Labour)
We may, but, on balance, it is a risk that I am prepared to run. I support the concept of annuities, but they have their drawbacks, one of which is that the Government force everyone with a defined contribution pension to buy one. We do not have a choice. It is also the only financial decision that is irreversible. Once an annuity has been bought, one cannot make any changes.
The decision is not a simple one. There are many different types of annuity: capital protected, single-life, joint-life, level, impaired-life, escalating, investment- linked. I will not go on and I certainly will not try to explain the various types. Despite the huge variety available, the choices that people make are limited. In his explanatory document, the right hon. Member for Skipton and Ripon says:
"We have also rejected trying to create 'fancy annuities'".
We do not need to offer a wider range of products, because people already find it difficult to choose. Rates available vary frequently, with daily changes by many providers. A company that gives the best deal on a Monday may well no longer be the best buy on Friday. Continuing, long-term, high-quality financial advice is therefore crucial. Usually that is least likely to be available to those with small capital sums available—the least well-off. That is one reason why I urge the Minister not to approach the Bill with the view that it will assist only the better-off. Far from it: some changes to annuities will help those with smaller capital sums, because the evidence suggests that they make the worst decisions. For example, only about a third of people use the open-market option, and it is those with larger pension pots who do so, but that represents more than half the total value of annuities purchased. The open-market option is invariably the better option and it should be chosen more often by those with smaller pension pots.