It's a wonderful joint life annuity
By Paul Farrow
Forget about sackfuls of pressies to unwrap or bottles of fine wine to sup, this is the one time of year that we should first and foremost consider the needs of others.
That's the theory anyway.
I have no doubt we momentarily shed our selfish ways for the festive period but what happens when the bedraggled trees have been thrown in the dump and decorations are back in the attic for another year?
Well, I can tell you that two-thirds of men retiring this year won't consider their wife when they buy an annuity. Even though they have a greater chance of meeting their maker before their loved one, they will buy an annuity whose income tap will turn off once they die.
Indeed, so worried are Age Concern that they went on the record a couple of years ago blaming "selfish" husbands for not providing for their wives.
The problem is twofold. Firstly, women tend to outlive men by around five years, while women have long been dealt a duff hand when it comes to pensions.
Just 17 per cent of women have a full basic state pension compared with 78 per cent of men, for instance.
The status quo remains to this day with the vast majority of pensioners opting for a single life annuity. Take Britain's biggest insurer, Standard Life. It informs me that two in three of its retirees opt for a single life annuity - ditto Prudential.
A single life annuity is just that: it pays for one person and when they die, the insurer snaffles the pot. With a joint life annuity, the surviving spouse gets around two-thirds of the annuity income for the rest of their life. But such insurance is not free and the single life annuity pays out a great deal more.
For example, a 65-year-old male would get £3,700 a year with a single life annuity, falling to £3,150 if it is joint.
Whether the decision to opt for a single life annuity is taken for selfish reasons is a controversial point. It has probably got more to do with lack of knowledge, or the realisation that you have not saved enough for retirement.
It could also be that the default option from insurers to would-be pensioners just happens to be a single life annuity. The suggestion from Billy Burrows, the annuity specialist, that a joint annuity should be offered as a default too, seems to have some mileage.
Naturally, when people take advice and are informed of their options they tend to buy a joint annuity; the problem is that most don't seek guidance or even trawl the market for a better solution than the one offered by their pension provider.
Which is why the Government ought to think twice about lifting a safety net on contracted out pensions.
As we report on the opposite page, the Government is proposing to open the playing field for contracted out plans so investors can put them in a Sipp.
The proposal looks sure to get the green light, but there is one potential stumbling block. Currently those who are married or are in a civil partnership are required to buy a 50 per cent spouse's pension with their protected rights pot.
Several providers are against this rule staying put because it will complicate matters and cause an administrative headache. Such a selfish attitude could have unforeseen consequences for a surviving spouse.
Another Christmas Balls-Up
There was more misery for pensioners embattled with the Government. First, Equitable Lifers were informed that the long-awaited report into the collapse of Equitable was delayed for a third time because the Ombudsman has received "substantial representations" from government bodies whose actions under investigation.
Then on Friday the Government published figures showing the number of people who had received some compensation from the Financial Assistance Scheme (FAS), set up to help victims of collapsed pension schemes. It was revealed that more than half of those who are of pensionable age have still to receive any money.
I've no doubt that Gordon Brown was hoping that we would see his generous side earlier in the week, when he said he was confident that he could guarantee that all the 125,000 who lost their company pension would see their payments increased from 80 per cent to 90 per cent. It certainly sounds a good idea although, as the indefatigable Ros Altmann points out, it is pure spin.
In reality, the pension they get will be worth around half of the amount they were due because it does not include all the benefits they would have got had their pension not gone bust.
Indeed, let us put spin aside for the moment. The FAS was set up more than three years ago to rescue workers whose company pension scheme had gone bust between January 1 1995 and April 5 2005.
The pension it will be paying out has been dubbed a "core pension" which strips out inflation linking, takes away the tax-free lump sum, pays much reduced widow's benefits and removes all ill-health and early retirement benefits.
Since the scheme was set up, the Government has been found guilty of misleading these thousands of workers into thinking their occupational pensions were safe, not once or even twice but four times.
Yet it has still refused to take any blame. Thousands of pensioners will suffer yet another Christmas without so much as a handout. Ministers should be ashamed of themselves.
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