Don't fall for the latest pensions rip-off

The financial industry has taken advantage of the new pensions rules to come up with yet another rip-off product.

When the new pension rules were announced in George Osborne's Budget, we were, like everyone else, pretty impressed.

However, we also noted that this would give the financial industry the perfect opportunity to show us, yet again, that there is nothing for which they cannot find an expensive and complicated solution. They've taken that opportunity already.

Given that the rules on annuities and drawdown change from next April (allowing everyone to effectively enter flexible drawdown), it doesn't make sense for those retiring today to buy annuities as they might have in the past.

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It makes sense, instead, for them to either defer taking their pension or to simply enter some kind of drawdown now and just spend the cash they need for the year.

However, that hasn't stopped the introduction of 'stopgap' annuities ones that either expire after a year or come with a 'surrender clause' built in. Providers say that this gives flexibility ahead of the reforms, but, says the FT, "concerns have been raised about the cost and complexity of these products".

The Financial Services Consumer Panel has raised concerns about the commissions 1.5% to 2% of the customer's pension upfront and more on surrender and others have mentioned the shocking rates on offer.

Pensions expert Ros Altman notes that the offerings from LV= and Just Retirement offer effective rates of just 0.5%. This is, as she says, "awful value".

The good news here is that many institutions aren't offering these products. The disappointing, but entirely expected news is that names that should be perfectly respectable are offering them.

We can only hope that an increasingly financially educated pensioner population doesn't fall for it.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.