Should annuitants be able to switch?

Annuitants should be able to switch to a better rate every few years, Steve Webb has suggested.

The pensions minister hinted to the media in early January that the government may look to bring in new rules allowing annuities to trade in for better deals from different providers.

Mr Webb said he would like pensioners to be able to switch to better annuities regularly – much like homeowners can change their mortgage deals.

Article continues after advert

While this does not reflect any current government policy, it has got advisers discussing whether or not this should be an option.

For Nicholas Fitzgerald, head of financial planning at Brewin Dolphin, Mr Webb’s idea should not be dismissed “out of hand”. “We must all think hard about improving returns from pensions for an ageing population, and his innovative idea is full of good intentions,” he said.

“Deciding whether to buy an annuity is one of the biggest financial decisions most of us will ever make, and in the meantime it is essential to get professional advice and to shop around, since your annual income from your annuity could vary hugely depending on which provider you choose.”

He added the real “tragedy” is that annuitants could be £100,000 worse off by accepting their first offer and not seeking advice.

Meanwhile, Allan Maxwell, director and chartered financial planner at Glasgow-based Corporate Benefits Consulting said the key problem is the fact the vast majority of those who purchase annuities either do not know about the options, nor do they take the time to understand what they mean for them and their family.

Recently, Moneyfacts announced the first annual increase in the pension rates as shown in the Table.