It always comes as a shock to me when I hear stories about people not shopping around for the best annuity rates because I assume everybody knew they could get a higher annuity from a company with better rates.
But, of course, everybody did not know about the advantages of open market annuities as witnessed by the high-profile reviews into the market; Prudential's intention to withdraw entirely from the annuity market highlights the changing dynamics of the sector.
It is easy for people like me who lived in an ‘annuity bubble’ to think that everybody read the newspapers or listened to the radio, but in reality many people either did not listen or felt under some obligation to accept the offer from their annuity provider. It can be argued that some companies had a vested interest in making sure customers were kept in the dark so they bought annuities at low rates, thereby earning huge profits.
Personally, I believe this was more of a cock up than a conspiracy, but as I look back at the history of open market annuities, readers can decide for themselves where the blame lies.
I can remember back to the early 1990s when a group of us got together to create the first specialist annuity broker. From memory, companies such as Generali, Pearl Assurance and Royal Life featured in the list of top annuity providers and a few, including Sun Life, offered impaired life annuities.
The deal with Sun Life was it contacted the customer’s doctor for a medical report and issued an enhanced quote. In fact, the Telegraph ran a story entitled Speak to your Doctor Before Buying an Annuity. In those early days, impaired life annuities were only for those with serious medical conditions such as heart problems.
Back in the early days of open market annuities the volumes were not high, but the increase in annuity income was significant. I can remember arranging annuities with huge increases in income. I think it is fair to say that in the early days, open market options was a specialist activity.
In about 1995, two things happened to boost the profile of the annuity market. Stalwart launched its smoker annuity rates and The Pension Annuity Friendly Society (PAFS) launched an impaired life annuity. By the beginning of the new millennium in 2000, the open market annuity was a mainstream activity and Prudential, Canada Life and Legal & General were at the top of the tables. However, the market was relatively unsophisticated with little use of technology. I remember most quotes were being faxed in 2000.
The annuity market probably became of age by about 2005 because by this time many companies and some brokers were offering online annuity quotes. This, coupled with much easier processes for applying for enhanced annuities from companies such as Just Retirement, made it much easier for advisers and customers to shop around for the best annuity rate.
Perhaps the heyday (or low day depending on your point of view) was from 2010 onwards when the marketing for annuities was ratcheted up, especially by the new breed of non-advised annuity brokers. I think a low point was reached soon after 2010 as evidenced by an article in the Telegraph by Pam Atherton, entitled Dodgy Annuity Salesmen 'Should be Hounded Out'.