Dealing with UK financial institutions is a frustrating business, largely due to their infuriating tendency to flood the market with pointless information and to withhold, to the best of their abilities, all vital pieces of information. Take savings accounts. If you put your money into one of last year’s best buys, odds are you still think you got a good deal. But flick to the small print on your last statement and you will see that you probably didn’t. As Jo Thornhill points out in The Mail on Sunday, many of the rates on these accounts have “faded badly”.
A year ago the National Savings Direct Isa was paying 6.4%. Today it is paying 5.4%. Then there are the one-time best-buy accounts from the Yorkshire, Derbyshire, Tipton & Coseley, National Counties and Stroud & Swindon building societies. All were near the top of the best-buy cash Isa tables last year. But look at Moneysupermarket.co.uk and you’ll see that only National Counties makes it this year. Instead, the list is topped by HSBC with an offer of 6.25% and Egg with 6.05%. What’s the betting neither of these two head next year’s list?
Irritating isn’t it? Luckily, for most of us savings account rate differentials lose us a matter of only a couple of hundred quid here and there. More important is the way our big financial institutions work to con us out of our pensions. Not only do they all too often grossly mismanage our money and compound their incompetence by helping themselves to unjustified levels of commission and fees, they then con us out of millions more when we finally come to retire.
The big insurers are legally bound to inform clients that they are not obliged to buy their annuity from the same firm that has managed – or mismanaged – their fund. Instead, they are entitled to exercise their “open market option” (OMO) and buy it from whoever they like, something the FSA says can get them a much higher retirement income (up to 20%).
Not a complicated thing to communicate, you might think. Yet a recent survey from the FSA showed that 21 out of 55 companies, all presumably loath to see any money going to competitors, didn’t even send out paperwork that meets the “minimum standards” (which, by the way, are not very high). The result? Around two-thirds of pensioners don’t use their OMO. Instead, they end up buying annuities from their pension provider at a price of the latter’s choosing. And the amount pensioners lose out on as a result? Around £500m a year. That’s more than just irritating. The FSA is finally muttering about taking action – working with the Association of British Insurers to improve matters – but our financial institutions are skilled at finding new ways to achieve the same levels of thievery even as the environment around them changes. So whatever the outcome of the FSA/ABI action, buyers should still beware.