Your pension: Insurers must display rival pension annuities
Originally published on the BBC
Insurance companies selling pension annuities will have to tell their customers if they can get a cheaper deal elsewhere and how to get it.
Each year tens of thousands of savers use the money built up in their pension pots to buy an annuity, or income for life.
Four out of five annuity buyers could get a better deal, the Financial Conduct Authority (FCA) said.
So it will force providers to show quote comparisons from September 2017.
This only covers standard annuities, rather than enhanced annuities for those who could get a better deal owing to a shorter life expectancy.
Guide to deals
The financial watchdog said that shopping around could gain annuity buyers up to £171 a year.
There is widespread reluctance among people retiring to investigate what other providers have on offer, despite a series of publicity drives.
From September, a quote from insurers will have to include – on the same page – a figure showing how much more a customer could get elsewhere, along with a link to a price comparison site.
They will have show key features on the same page, including whether a surviving partner would continue to receive an income and whether the income would rise with inflation.
What is an annuity?
Individuals save into a pension during their working life and so build up a pension pot.
At some point during the first years of retirement, they may use the money that they have saved to buy an annuity from an insurance company.
This is a transaction that occurs once, and only once. An annuity is an annual retirement income that is paid to them for the rest of their life.
The annuity market has shrunk significantly since the government launched its pension reforms, allowing savers to cash in pension plans and use the money as they wish, subject to tax.
Annuity sales are still running at around 20,000 every three months and providers have given a guarded welcome to the FCA’s plans.
Andrew Tully, pensions technical director at Retirement Advantage, said: “Any attempt to encourage more people to get better value from their retirement savings is welcome, although I fear this may not be enough to solve the issues with the market.
“The problems are deep rooted and far too many people continue to receive poor value from their annuity due to the lack of shopping around. Ironically, since the introduction of the pension freedoms, the situation has actually got worse, so we need some radical thinking.”
Rob Yuille, head of retirement policy at the Association of British Insurers, which represents providers, said: “Customers should have the information they need to make the right decision for them. Annuity providers will look at what the FCA has proposed and provide helpful feedback on how to make the plans work successfully for customers in practice.”