Four out of five retirees who purchase an annuity from their existing provider could have made a better income by shopping around, data gathered as part of the Financial Conduct Authority’s review into the annuities market is expected to reveal.
Around 420,000 people cash in their pension pots for annuities every year. FCA data to be published this week is expected to show that, of these, 168,000 buy from their existing insurer, with 80 per cent - approximately 134,400 - taking a lower income than they could get by shopping around.
Those missing out could simply be taking a lower standard rate than that available on the open market, or may qualify for a higher retirement income through an enhanced annuity due to health problems or lifestyle choices but wind up going with their insurer’s default annuity.
According to the ABI annuity window, which went live in August 2013, the lowest standard rate for a £24,000 pot is offered by Countrywide Assured and currently pays an annual income of £1,087.75, 16 per cent lower than the highest open market rate of £1,287.28 available from Legal and General.
The regulator is set to publish the findings of its thematic review, including the steps it will take to rectify any shortcomings or failings, this coming Friday.
A report by the Financial Services Consumer Panel at the end of last year found that although consumers were generally more aware of the ‘open market option’ and more than half now shop around before annuitising, they are still being misled by non-advised annuity broker services.
According to the FSCP, these services sometimes claim to be ‘free’ while they in fact pay commission, fail to disclose their lack of protection compared to advised sales, and lead to poor consumer outcomes due to their use of restricted or ‘tied’ panels.
National advisory firm LEBC yesterday (11 February) called for a ban on non-advised annuity brokers as well as ‘limited’ panels run by restricted adviser firms, claiming it would bring the sector into line with the spirit of the Retail Distribution Review and ensure fairer outcomes for customers.
Elsewhere yesterday the True and Fair Campaign called for the Money Advice Service to employ IFAs to provide independent advice for those approaching retirement in order to ensure that the costs of taking the open market option do not fall on the consumers.
The comments from campaign founder Gina Miller follow a pledge in the Labour Party’s pre-election manifesto to ensure pension savers approaching retirement benefit from advice from an ‘independent broker’.
Labour also said it would clamp down on unfair charges and fees and will force pension providers to disclose the full range of charges and transaction costs.