Ros Altmann appears to be a very stupid woman indeed

Millions of widows are being ‘betrayed’ by pension schemes that ‘die’ with their husbands, a former government adviser warned yesterday.

They are left ‘penniless’ by so-called single life annuities, which do not pay out to a surviving partner.

Insurers are now making around £1billion a year by pocketing the balance of the funds rather than giving it to widows, said pensions expert Dr Ros Altmann.

Many men are opting for often complex schemes without understanding the future effect on their spouse.

And as women typically live longer than their husbands, it can leave them facing disastrous financial consequences in the future, she said.

‘The UK annuity market is failing its customers,’ said Dr Altmann.

The former government adviser said husbands were not ‘buying the right product’, with many widows saying their partners may have had no idea what they were signing up for.

In the most heart-breaking cases, women find out that they will not receive their husbands’ pension payments when they are still grieving.

About 425,000 people cash in their pension pot every year with an insurer, which promises to pay them an annuity every month for the rest of their life.

But the majority of people take out a single life annuity – which is only paid to them and stops when they die.

Many are attracted to such schemes because they offer a much higher rate than a joint life annuity, which pays out to a surviving spouse.

The clue to what is happening is in that last line.

Precisely because women tend to live longer than men a joint annuity will pay less each year than a single life one.

There’s no betrayal here, no insurance company pocketing a billion. There’s just people choosing between two products and in making that choice making the one that Dr. Altmann thinks they shouldn’t.

Well, bully for Dr. Altmann.

25 comments on “Ros Altmann appears to be a very stupid woman indeed

  1. It’s also a sign of being a bloody fool to sing the song that the money vanishes into the pockets of the insurance companies. No doubt they make a decent living (though I don’t know about high-living; companies tend to leave rather than join the industry), but “the money” that you don’t get – by virtue of dying young – goes largely to those who die old. That’s the mutual insurance nature of annuities.

    That some men behave shabbily to their wives is hardly news , is it? “Many people selfish shits” is the headline required.

  2. In a TV interview, Ros basically said that customers are too stupid to understand what words like “single life annuity” mean. Her accusation is that annuity providers are “mis-selling”, as per the recent PPI matter.

    With PPI, mis-selling was easy to prove: e.g. if you’re self-employed then redundancy insurance isn’t going to cover you. With annuities, I can’t see how you would prove mis-selling.

  3. but within the dross there is a point to be made. What you can do with a pension pot is wrapped up in regulation – lots of regulation, which seems to change regularly. It might be a result of a desire to “protect” pensioners, but it results in bad decisions based on poor information.

  4. As an actuary heavily involved in annuity pricing and reserving, I want to bash my head off the wall whenever they are discussed in the media or by politicians.

    The life insurance industry does itself no favours in its marketing literature for annuities, but if there are excess profits” (thanks Mr Shapps) then I’d love them to be pointed out. The life office annual returns are there for all to see.

  5. Andrew M>

    Whether it’s pensions, or IT, or rare metals, or anything else you care to mention, when people start talking in jargon, a lot of people – pretty much everyone, unless we specifically concentrate on it – stops listening to the real meaning of the words and just treats them as technical terms.

    Of course if you stop and think about the words ‘single life annuity’, it’s obvious that they refer to exactly what they say: a single life. But people don’t do that with jargon. They hear a word ‘singullyfannuity’ which they sort of understand from context, and if they’re conscientious will probably try and learn the technical definition. Full understanding only comes when they break through the jargon and realise it’s some very simple concept rather than something esoteric.

    There’s no reason why a financial advisor can’t talk about an ‘annuity for one person’ or ‘annuity for two people’. Given how onerous many of the restrictions and regulations in this area are, it would be very sensible and effective to simply dejargonise the process.

    When you consider the purpose of jargon – to baffle outsiders – it’s obvious that it’s both morally right to dejargonise, and economically a good thing to do, removing barriers to an informed market.

  6. Dave,
    I agree entirely. It’s quite likely that people probably have been sold the wrong product. Nevertheless it’s much harder to prove with annuities than with PPI. It’s not as if the provider is making more profit from a one-person than a two-person policy. To further complicate matters, by the time the complaint arises, one party is usually deceased.

  7. Offer someone £600 a month for a single life annuity or £400 a month for a double life annuity. Which will most people choose? Yes, the one that gives them more money per month now. No amount of explanation will offset desire for more money.

  8. Any non-enhanced single life annuity sold to a man since gender-neutral annuities were enforced is a mis-sale. But that is NOT what Ms Altman is talking about. She is talking about annuities bought years ago at decent rates where the man has since died.
    This only refers to members of DC schemes and those with personal pension plans (self-employed or working for a company with no pension scheme so a smallish minority).
    Let us for the purposes of argument assume that he was married and remained married to the same woman until his death; also that his wife/widow does not have an occupational pension of her own. [So we are restricting this to a minority of a minority]. Then the poor widow is suddenly reduced to an income of £110.15 – oh no its £145.40! So unless the man died very shortly after retirement the couple are/were over the whole time to the widow’s death better off from the single life annuity plus the taxpayer-funded top-up to his widow’s pension than if he had joint chosen a joint-life annuity. At current annuity rates the taxpayer funded inflation-linked top-up is worth around £50k, which is more than the total purchase price of the guy’s annuity in the first place for a lot of guys “on the shopfloor”.
    Failing to recommend an enhanced annuity when one is available would be a mis-sale but prior to gender-neutral rates, it is very, very unlikely that a single-life annuity was per se a mis-sale. In fact one could argue that in the scenario for which Ms Altman demands our tears, a joint-life annuity would have been a mis-sale.

  9. Martin>

    If people make an informed choice, that’s fine. But if they don’t understand why there’s a difference between the rates, then of course they’ll choose the higher rate because it appears better to them.

    John77>

    I’m not sure it’s quite what’s normally meant by mis-selling, but just because a choice was reasonable doesn’t mean someone was fully aware of their options. Even if the two options were roughly equal, it’s still down to individuals to choose which best suits them, not to be pushed into one or the other simply because it’s vaguely suitable – not that I’m saying that’s what happened here; I’m talking in general terms.

    To give a somewhat silly example, take the mawkish stories one hears of long-married couples where when one dies, the other gives up and follows them within a short time. For them, single-life is obviously the correct option regardless of the balance for an average couple. Would a financial advisor be expected to take such things into account? Of course not. It’s their job to explain the options so the clients can make informed decisions based on their personal circumstances.

  10. If people cannot be bothered to understand what the term “single life annuity” means when they are planning the income of them and their spouse for the next 20 odd years then fuck ‘em. It isn’t exactly “credit default swap”, is it?

    I don’t want to sound all Vogon about this but fucking hell.

    This is one of the issues with hyper regulation – the assumption that everyone is brain dead, cannot read and cannot understand fairly simple concepts.

  11. Rob>

    Somehow ‘credit default swap’ is harder to understand? I think you just proved my point about jargon.

  12. Ah feminism. Man as a wallet with legs. Still a wallet with legs, even when the legs no longer function due to death. Financial objectification, and all that.

  13. Presumably the correct response is to have a society in which people aren’t allowed to make choices, in case they make the choice Dave wouldn’t have made.

  14. @ Dave
    She is alleged (by the Daily Mail so that may be an approximation) to have said that single-life annuities were mis-sold because the guy didn’t know what single meant. This is because his widow – not the purchaser himself – is worse off after his death than if he had chosen a joint-life annuity.
    I was pointing out that in the average case the *couple* is better off if he chose a single-life annuity: even more so if he is separated from his wife so his partner would get nothing from the joint-life annuity. Insurance companies do not pay generally pay annuities to unofficial partners – not because they are callous but because they have to work on legal contracts (they might for a massive one where it was worth drafting a special contract but if the guy has that sort of money we’re not into Ros Altman’s tear-jerking territory).
    We are asked to believe that “single” is not understood and/or that there are no men who want to maximise their own income during their life at their partner’s expense and that all widows have no occupational pension. I am reminded that 50-odd years ago Asimov wrote a very good short story to explain how and why the moon’s surface had turned into green cheese.

  15. Tom>

    Personally, I think being a financial advisor ought to be a much harder job than it is. Explaining this kind of thing to people properly isn’t particularly easy. As I said earlier, though, it would help if people made a bigger effort to dejargonise.

    John>

    I was trying to talk in more general terms. I wasn’t arguing that your analysis is wrong, but that even if the not-mis-selling turns out to have been right (with the benefit of hindsight), it’s better for people to have made an informed choice to that effect for themselves.

  16. dearieme – “That some men behave shabbily to their wives is hardly news , is it? “Many people selfish shits” is the headline required.”

    I would hardly leap to that conclusion. I bet the majority of such pensions go to men whose wives also have a pension. If she has one from her work, why buy another?

    Even if they do not, men probably understand their own financial needs quite well. They may assume that their grieving widow will sell the massively over-valued house and down-size. So she won’t need the full whack.

    Only the person wearing the shoes knows where they rub. Let’s be generous with the fully-informed decisions of our fellow adults.

  17. Dave,

    The purpose of jargon is not to baffle outsiders. That is the purpose of a code. The purpose of jargon is simplify long phrases that are commonly used in a given area.

    Regarding the choice of a single or joint life annuity, isn’t it the case that on average they both pay out the same?

  18. @ Dave
    Agreed. But Ros is assuming that they *must* have been mis-sold because the pension ends at the first death whereas an elementary analysis shows that this is the result of correct advice.
    @ Mr Portato
    Well, subject to a margin for risk – which will be higher for a joint-life annuity than for a single-life annuity as their are two risk variables instead of one. So the FSA (we’re talking past annuities) required more capital to back them. Even if one assumes that the place is run by an actuary the expense loading will include the cost of the dividends on that capital so the return to the annuitant(s) must be lower.

  19. Dave, I just can’t understand why you think the term ‘single life annuity’ is jargon, or why it would be hard to understand for anyone prepared to make the effort, or indeed what the informed or ill-informed annuity purchase decisions of another person could possibly have to do with you or me?

    What would you like to do to make your ought for financial planners a reality?

  20. Mr P>

    Jargon in the modern sense isn’t explicitly meant that way, but the origin of the word was the mediaeval thieves’ zhargon. The thieves’ cant is a later version of the same thing. You might compare polari, as well, which was closely related in function and form.

    The whole point of these secret languages is to be able to talk in front of outsiders without them understanding.

    Of course, that’s not the intention of financial advisers these days, at least on the whole. Jargon has taken on a slightly different meaning as people use it for different reasons, but the way it works is the same: it’s a ‘secret language’ with which to show you belong.

  21. Tom>

    I work in IT quite a lot, and I see the way people treat seemingly normal phrases as jargon all the time. I’ve had otherwise extremely intelligent people ask me what ‘right-click’ meant – not because they wouldn’t work it out if they thought about it for a moment, but because something strange happens when people decide something is jargon and they just don’t analyse the words; it seems to me that essentially they start treating the term like a proper noun, and who analyses people’s names?

    Basically, I think ‘single life annuity’ is subject to the same effect, mainly because that explains, simply, why people seem to have trouble understanding an apparently straightforward term.

    “or indeed what the informed or ill-informed annuity purchase decisions of another person could possibly have to do with you or me?”

    We already have extensive regulation of financial advisers. Possible changes to it are the subject under discussion.

    Personally, I don’t believe financial advisers should exist unregulated. I’m also not a big fan of regulation where avoidable. It seems to me that the solution is to accept that being a financial adviser ought to be a much harder job than we make it, pay people better, get better people, and so have fewer problems.

    At the moment FAs are still largely salesmen. They ought to be something closer to a cross between accountants and teachers.

  22. Somehow ‘credit default swap’ is harder to understand? I think you just proved my point about jargon.

    Well, “single-life annuity” means an annuity which lasts to the end of a single life. While “credit default swap” means a swap contract under which one party makes fixed payments and in return has the right to sell a specified bond for the swap principal amount in the event that ISDA declares the bond to be in default, the fixed payments then ceasing. I think the CDS meaning is a lot less obvious.

  23. Dave, I too work in a reasonably technical field. I have to say that I haven’t experienced people switching off when technical matters are discussed. In my experience they appear to try harder to understand when the terms are non-familiar and they often ask a lot of questions.

    “It seems to me that the solution is to accept that being a financial adviser ought to be a much harder job than we make it, pay people better, get better people, and so have fewer problems.”

    How do you make this happen?

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