THE government announced a series of reforms to private and state pensions yesterday. Under the proposals, retired workers would be able to switch annuities regularly to get the best value for money. It would work in a similar way to mortgage switching. David Cameron also vowed to maintain the triple-lock on the state pension, which keeps the pension rising by inflation, wages or 2.5 per cent, whichever is highest. Steve Webb , the pensions minister, said the annuity plans would prevent pensioners from getting locked into poor schemes until they die. He also set his sights on hidden charges levied on customers. "When you take out a mortgage, in a few years if rates change you can switch your mortgage, but when you take out an annuity, that's it - for life. This could easily be for a quarter of a century," he told the Sunday Telegraph . "Why shouldn't you be able to change your annuity provider so a few years later somebody else could offer you a bigger pension?" He called for transparent charges. "There are almost murky things at the point where you buy an annuity. There are odd percentages going in funny places for no good reason." He added: "This is a complicated transaction for many people. The industry under-stands this stuff, the public don't. I think lottery is a fair word." Labour said the government was tinkering: "If he and his government were really serious about reforming the pension system they would use their pensions bill to introduce reforms to help savers - anything else is just talk." But Mark Wood , chief executive of JLT Employee Benefits advised caution when comparing annuities with mortgages. "A mortgage simply finances the purchases of a house while an annuity guarantees an income for life, however long an individual lives. Allowing people to chop and change runs the risk of making this guarantee unaffordable," he added. Cameron committed, if elected, to keep the state pension triple-lock until at least 2020. However, there was disarray last night over whether winter fuel allowance, free bus passes and TV licences would be maintained for all pensioners if the Conservatives won the election. While Cameron is apparently in favour of the giveaway, other cabinet members want means testing. Q What is an annuity? and AAn QA annuity is a financial product that pays a guaranteed income for life. It is most commonly used by people with private pensions to convert their lump sum payment into regular income. Annuities are becoming more popular as final-salary pensions have died out in the private sector. Annuities can vary depending on your lifestyle. Some people are entitled to enhanced annuities if they have a shorter life expectancy. Q Why is the government proposing to shake up the annuities market? A There have been a number of warnings about the annuities market, most recently a consumer watchdog claiming that regulators were failing to prevent people being ripped off. Confusion over what to expect and the fact this is an irreversible purchase are concerns. But changing life expectancies and the need to guarantee income levels in a low interest rate environment are major challenges for providers. Q What other changes are the government proposing? A The government is keen to see more transparency, mixed pension arrangements, collective pensions and "mega funds".
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