Those of us working in the small-cap equity markets have been beaten to a pulp by the punitive actions of a power-crazed regulator.
The Financial Conduct Authority (“FCA”) is a vastly expensive (paid for by its member firms) organisation that beats up defenceless small guys. The real felons have retreated to their Mediterranean villas, laughing their socks off and waiting for the next bull market. Some are now stirring as market psychology (Hayek and all that stuff) convinces ‘Daily Mail’ readers that good times are returning.
There is, however, a new rip-off which demonstrates, if proof were needed, of the ineptitude of the FCA and its predecessor, the FSA. It has been expose by the Association of British Insures (“ABI”). In March 2013 they introduced an ‘annuities code of conduct’. The 24 members must now provide tables and explain how individuals can shop around.
Every year 420,000 people buy an annuity. 52% accept the deal offered by their existing provider. For many the turning of their nest egg into a monthly income (paid until death) is far less rewarding than they deserve. A former Downing Street pensions adviser has called it a ‘rip-off’. Long standing customers are being short changed by up to 30%. On a £100,000 pension pot this is a loss of £1,444 on a yearly payout.
An annuity purchase is irreversible. Many pensioners will die before all their life savings (less charges) are returned in full. In the example given this is a loss of £43,320 over a thirty years retirement.
It gets worse. It has been exposed that savers suffering from illness (so having shorter life expectances) are being offered up to half the going rate.
How does the odd widow investing in a speculative gold mine (using spare cash) compare to hundreds of thousands of British pensioners being ripped-off by household names. The FCA need to provide better regulation but there are two issues:
a) annuity rates are published by the ABI (www.abi.org.uk). Only their members feature: others hide away. The rates published are two months old because, for legal reasons, current data cannot be shown. The website is difficult to navigate.
b) there is no appetite to really expose this scandal and anyway the FCA are beyond accountability.
Retirees can chose (not that many know this) to invest in an ‘income-drawdown’ plan. The returns are better. The risk is that the funds may run out and, with longevity tables increasing, this is a factor.