Savers taking annuities are facing a growing gulf between the best and worst rates available making a decision not to shop around - or seek an alternative - more costly than ever, according to an analysis of recently published Association of British Insurers data by Hargreaves Lansdown.
Tom McPhail, head of pensions research at the firm, said that the gap from the lowest to the highest rate with 12 scenarios covering single and 12 covering joint life policies on either standard or a range of ‘enhanced’ terms across several postcodes, was 35 per cent in July.
The average disparity has risen from 31 per cent in December last year and amounts to an average of £7,162 of lost income on the £21,000 hypothetical pot on which all of the example rates were based, Mr McPhail said.
Last year, FTAdviser reported on the first iteration of the data which exposed a 24 per cent drop from the highest rate, provided by Reliance Mutual, to the lowest offered by Hbos group companies Scottish Widows, Clerical Medical and Halifax.
This was based on a conventional rate being taken on a single life basis. Using similar terms, the drop in the latest dataset actually fell slightly to 20 per cent, implying a greater variance in enhanced rates offered to those with lifestyle or health impairments.
Data from the survey, which was carried out in July 2014, lists the ‘sample’ rates for 27 annuity provider members with the aim of offering greater transparency on market rates available.
The figures reveal that for a 65-year old with a £21,000 pension pot the best rate available is once again from Reliance Mutual, which according to the fictional customer profile will pay an annual rate of £1349.40.
In contrast, Countrywide Assured and Guardian Financial Services pay the lowest rates at £1,078.57 and £1,106.94 respectively.
The listed rates for Reliance Mutual, Countrywide Assured and Guardian are only for existing customers only and are not available on the open market.
Most companies are quoting rates at least 10 per cent below the best on offer, whilst on average only a third of companies are offering customers ‘competitive terms’ analysis by Hargreaves Lansdown shows, with some companies failing to supply data.
Fidelity, NFU Mutual and Wesleyan all claim to offer a panel without disclosing how competitive their panel terms are, Hargreaves added.
Mr McPhail said: “It is painfully obvious that some companies are making no effort to offer their customers decent value.
“For investors who do shop around, competitive rates are available; unfortunately we also know that in spite of the recent budget reforms, investors are still being rolled over into their existing provider’s annuity.
“What’s more many pension providers are failing to offer investors a low cost alternative to annuities, such as a drawdown plan.”
Mark Goodall, chief executive officer of Reliance Mutual, said: “We have actually withdrawn from the external annuity markets; we only provide smoker and non-smoker annuities to existing clients but we are not competing in the open market anymore.
“We took a long and hard look at the market and the decision was made largely as a result of the significant changes announced in the Budget but also that these products have high capital requirements and future high capital requirements.
“We don’t always offer the best annuity - we don’t expect we will have the best annuity for everyone so some customers go elsewhere; at the moment approximately half of our customers go elsewhere on average.”
