Government acts on small-pot crisis The government is considering ways to tackle poor value annuity deals offered for small pension pots after an FT Money investigation showed that some savers must live beyond 100 to get value for money. Steve Webb, the pensions minister, has told the Financial Times that it is more difficult for savers with small pots to get value for money. Analysis published in the FT last week showed that savers with "small" pots of less than £10,000 are offered very low rates by insurance companies when exchanging their lifetime savings for a secure income in the form of an annuity. The rates leave them with little or no chance of living long enough to recoup their initial investment, let alone achieve a return. The pensions minister said that he was considering ways to help those with small pension pots get better deals. "All people who work hard to save into a pension deserve to get value for money when they come to retire and choose to buy an annuity," he said. However, the smaller the pot, the harder it is to get a good deal. Tackling this will become all the more important as millions more people save into a workplace pension with automatic enrolment. Analysis by Ros Altmann, an independent pensions expert and former adviser to Downing Street, looked at rates offered for small pots of less than £10,000, of which 121,000 were sold in 2012 and 77,000 over the first three-quarters of 2013. Even for a £5,000 pot, they would need to live to 99 years. "There is no value in the small annuity (for the saver)," Altmann told the FT. It's just pure profit for the insurer. The Financial Services Consumer Panel has called on regulators to probe the smaller end of the annuity market, where competition is far weaker as there are few providers competing for business. Debbie Harrison, visiting professor at the Pensions Institute at Cass Business School, said we are seeing a "two-tier market" where many consumers with small pots might find it very difficult to get a good deal even if they shop around." An extensive report published by the panel last year called for swift action to clean up the wider annuity market, saying millions of pensioners were at risk of getting a poor or unsuitable deal. The panel found that consumers were "poorly placed" to drive competition among providers and distributors due to an "increasingly complex" marketplace. As debate increased about the value of annuities in the current market, Legal & General, a pension provider, on Wednesday insisted that the true value of the products had not been fully recognised. "The pension annuity is the core product in the UK retirement income market and it provides the guarantee of a secure income for life that many consumers, especially those with smaller pots, desire," said Legal & General. As we are all gradually living longer, the reassurance of a lifetime income guarantee is becoming even more important, especially with an increasing need to cater for long-term care. So the value annuities provide should be measured primarily in the context of insurance against living much longer than expected.