Cicero Policy Briefer

Issue 17, October 2007

Annuity reform—is the tide turning?

By Iain Anderson

Annuity reform has been something of a labour of love for me. Cicero Consulting's first client back in 2001 was the Retirement Income Reform Campaign—an initiative we are still delighted to support with strategic communications counsel.

In fact—I must confess RIRC chairman Sir Nicholas Goodison, director Dr Oonagh McDonald and I have been advocating allowing more flexibility around retirement options since the campaign got underway almost 10 years ago.

Over that time, we have backed and advised on five Private Members Bills, three major consultations on the issues and two Pensions Bills, yet the prospect of reform has ebbed and flowed.

We have had a very fair hearing with several Treasury and DWP ministers—especially on the issue of gender equality—but, frankly, we have been hampered by a degree of 'not invented here' thinking.

So what are the prospects for future change?

We know that MPs’ postbags continue to be full of anger about the need to annuitise and that the number of people moving from DB to DC continues to increase—but officialdom seems set in its ways.

At the recent Tory conference, we supported the IMA's platform event which asked the question, What Future for Annuities? Shadow Economic Secretary Mark Hoban MP indicated the only way to achieve reform was by voting Tory—well, he is allowed to say that at his own conference.

However, what chance for change with the current administration? I would argue two factors are now in play which increase the chances for reform.

Firstly, the Government wants to make Personal Accounts a real success. Personal Accounts will, of course, be a defined contribution option and people will, currently, have to annuitise. I suspect this issue will play out quite strongly as the debate around the creation of incentives for Personal Accounts makes its way through Parliament.

Secondly the new capital adequacy ICAS structure for insurers as well as the impending Solvency II regime is already seeing many players step back further from remaining in the marketplace. With a continuing lack of choice in the market there will, I predict, soon be competition arguments which can be put into play to encourage reform. Indeed, many ABI members are now talking more freely about the need for movement on the issue.

These two factors will be playing strongly in officials’ minds in months to come.

Not invented here—not yet, but I suggest that reform might be closer than ever.

Iain Anderson can be contacted on +44 (0)20 7665 9532 or click here to email.