%VIRTUAL-SkimlinksPromo%Hundreds of thousands of pensioners face being ripped off when investing in the UK's £12 billion annuities market unless regulation is tightened urgently, an official advisory panel has warned.
Retirees choosing where to invest their pension pots may face poor deals if sticking with insurance companies with whom they have saved their funds but face a bewildering variety of options if shopping around on the web, according to a report.
They may be attracted by deals offered by so-called "non-advice" options without realising they forfeit the right to consumer protection services - or that they may carry hidden charges, the Financial Services Consumer Panel found.
Some online and offshore providers have an "unclear" regulatory status, with evidence of poor conduct including unsolicited emails and telephone calls, according to the report.
The confusion can result in customers deciding to "shop but stop" and going back to the "rollover" product offered by their original insurance company - an area of the market where regulation is "extremely weak".
Annuities provide the main means by which ordinary people turn their defined contribution pension savings into retirement incomes.
New annuity business - which currently sees 400,000 sold each year - is expected to double over the next few years due to the impact of maturing pension plans and the introduction of auto-enrolment for private sector workers.
The panel found that while product complexity had increased, professional advice was harder to find, and retirees were increasingly buying annuities on the open market through "non-advice" websites and "losing valuable consumer protection".
"Irreversible mistakes affect retirees for the rest of their lives," the panel warned.
It concluded: "The chances of mass consumer detriment are, in our judgment, too high to trust to current market-driven solutions alone: hence our recommendations for further regulatory and Government-led structural reform."
Sue Lewis, chair of the panel, said: "The increase in non-advice sales appears to be driven by light touch regulation and higher profit margins, not consumer demand.
"We urgently need to reform this market, particularly for those with smaller pension pots, who usually can't get independent advice. Our recommendations are intended to make choosing the right annuity more straightforward."
The panel recommends that the Government should set up a service guiding retirees through the process of buying "non-advice" products for those with small pots.
Other measures include a call for the Financial Conduct Authority to set up a code of conduct for the non-advice market and a study into the "possible exploitative pricing" of annuities sold by insurance companies to customers who have saved with them.
Tom McPhail, head of pensions research at Hargreaves Lansdown, said: "For many people, the retirement process and in particular the purchase of an annuity is one of the most significant financial transactions they will undertake.
"The challenge is to make that process as effective as possible."
Mr McPhail said shopping around at the retirement for the best rate and the best income "should be the default option for everyone".
He said more than half of pension pots were worth less than £20,000. Customers with smaller funds find it difficult to obtain paid-for financial advice. Advisers can instead direct them towards a non-advice product which may pay the advisor a commission.
Pitfalls can potentially include pensions offering good retirement incomes but stopping at death meaning a spouse is left without an income - a drawback which may not be spotted without advice.
Figures from charity Age UK show that 29% of those over 60 feel uncertain or negative about their current financial situation - with millions facing poverty and hardship. Even though saving for retirement is not much fun, the message is therefore that having to rely on dwindling state benefits in retirement is even less so. To avoid ending up in this situation, adviser Hargreaves Lansdown recommends saving a proportion of your salary equal to half your age at the time of starting a pension. In other words, if you are 30 when you start a pension, you should put in 15% throughout your working life. If you start at 24, saving 12% of your salary a year should produce a similar return.
Many older couples rely on the pension income of one person - often the man. Should that person die first, the other person can therefore be left in a difficult position financially.
One way to prevent financial hardship for the surviving person is to take out a joint life annuity that will continue to pay out up to 67% of the original payments to the surviving partner should one of them die.
The disadvantage of this approach, however, is that the rate you receive will be lower. Again, the Pensions Advisory Service on 0845 601 2923 is a useful first port of call if you are unsure what to do.
Around 427,000 households in the over-70 age groups are either three months behind with a debt repayment or subject to some form of debt action such as insolvency, according to the Consumer Credit Counselling Service (CCCS).
Its figures also show that those aged 60 or older who came to the CCCS for help last year owed an average of £22,330. Whether you are retired or not, the best way to tackle debt problems is head on.
Free counselling services from the likes of CCCS and Citizens Advice can help with budgeting and dealing with creditors.
Importantly, they can also conduct a welfare benefits check to make sure you are receiving the pension credit, housing and council tax benefits, attendance and disability living allowances you are entitled to.
The average UK pensioner household faces a £111,400 tax bill in retirement as increasing longevity means pensioners are living on average up to 19 years past the age of 65, according to figures from MetLife. And every year in retirement adds an extra £5,864 in direct and indirect taxes based on current tax rates to the costs for the average pensioner household. You can be forced to go bankrupt if you fail to pay your taxes, so it is vital to factor these costs into your retirement planning.It is also important to check that you are receiving all the benefits and tax breaks you are entitled to if you want to make the most of your retirement cash.
The cost of a room in a care home in many parts of the country is now over £30,000 a year, according to figures from Prestige Nursing and Care. So even if the prime minister announces a cap on care costs - last year the economist Andrew Dilnot called for a new system of funding which would mean that no one would pay more than £35,000 for lifetime care - families will still face huge accommodation costs. Ways to cut this cost include opting for home care rather than a care home. Jonathan Bruce, managing director of Prestige Nursing and Care, said: "For older people who may need care in the shorter term, home care is an option which allows people to maintain their independence for longer while living in their own home and should be included in the cap." However, the only other answer is to save more while you can.
Older Britons are often targeted by unscrupulous criminals - especially if they have a bit of money put away. For example, many over 50s were victims of the so-called courier scam that tricked into keying their pin numbers into their phones and handing their cards to "couriers" who visited their homes. It parted consumers from £1.5 million in under two years. Detective Chief Inspector Paul Barnard, head of the bank sponsored dedicated cheque and plastic crime unit (DCPCU), said: "Many of us feel confident that we can spot fraudsters, but this type of crime can be sophisticated and could happen to anyone." The same is true of boiler room scams that target wealthier Britons with money to invest, offering "once-in-a-lifetime" opportunities to snap up shares at bargain prices. Tactics to watch out for include cold calling, putting you under pressure to pay up or lose the opportunity for good, and claiming to have insider information that they are prepared to share with you.