Time to force annuity buyers to shop around for best pension deal
The Government must move quickly to make it obligatory for pension firms to inform customers that they can shop around for the best deal when it comes to turning their pension pot into an annuity, a so-called ‘income for life’.
Ruth Dolan, a chartered financial planner with leading south east law firm Furley Page, says: “In the past insurers, who manage the majority of pension schemes, have not been obliged to tell their customers that they have an open market option. This is where customers can find the best value provider for their lifetime income themselves rather than taking a default option from their pension provider.
“It is tragic to see people who have saved into a personal pension scheme for years fail to make the most of their pension pot. It is difficult to believe but most people will take the annuity offered by the pension provider without further investigation.”
Furley Page is urging the Government to introduce new rules to make pension firms inform customers that they can shop around for an annuity, and Ruth has welcomed recent signs that regulators are moving in this direction.
One major insurance company has recently broken ranks with the rest of the industry to urge Ministers to make changes to ensure that today’s retirees get the best possible deals in the market. The company – Aviva – has thrown its weight behind the open market option, claiming that the typical person could boost their retirement income by between 10 and 20% by shopping around.
According to Aviva, 385,000 people bought annuities last year and only 32% of these purchased annuities from a different company than the one they had saved with.
Ruth says: “You should not feel loyalty to your pension provider unless you have shopped around and they are still offering you the very best annuity deal in the market which is right for your own personal circumstances.”
Annuities are simple in their concept – you use your pension pot (or part of it) to buy an income for life. There are different types of annuity offering a number of income options. The annuity provider will need to assess what they are prepared to pay you in terms of income and this is based on a number of factors including age, health and prevailing interest rates.
“Generally, the annuity figures provided by your pension provider when you retire are standard rates for a person of your age and do not take into account your health or any of the various options that you may need. These rates are invariably uncompetitive,” says Ruth, a member of the Society of Later Life Advisers.
“The first thing you should do when you receive one of these letters is to contact an independent financial adviser. They will be able to guide you through the options available with annuities and then look across the annuity industry for the best rate.
“A full health questionnaire should be completed to ensure that any quote is personalised for you and this could have positive results for your final pension. It is always interesting to see the difference between the final annuity and the original quote individuals receive from their pension providers.
“Of course you have to pay for the advice you receive but even taking into account the fees, you should still receive a higher income than that initially quoted by your pension provider,” says Ruth, who points out that as founder members of Solicitors for Independent Financial Advice (SIFA), Furley Page has been offering expert guidance on pensions for more than a decade.
For further information, visit furleypage.co.uk.