The insurance industry has agreed a new code of conduct on annuity sales to help consumers get better information on annuity rates and maximise their retirement income.
One in three people fail to currently fail to shop around for the best rates and many miss out on higher-rate enhanced annuities. The new code of conduct will force insurers to provide more information to people approaching retirement to get the best annuity rate.
Increased annuity choice by shopping around
Buying an annuity is how most people with a defined contribution (money purchase) pension secure their retirement income. Their pension ‘pot’ buys them an income for life.
Not all pension providers offer competitive annuity rates however and it is only by ‘shopping around’ that you can be sure of getting a fair deal. In the past, many people have failed to do this – and settled for a poor rate.
Those with medical conditions or lifestyle factors which may reduce life expectancy can increase their retirement income considerably by buying an enhanced annuity. Mainstream providers don’t all give enhanced rates, so for those who may qualify searching the market is particularly important.
New annuity rules for insurers
The Association of British Insurers (ABI) has announced a new code of conduct which obliges its members to make searching the market easier. From 1 March 2013, firms will have to:
- Provide clear and consistent communications to ensure customers are able to make informed and proactive decisions about retirement income products, and are able to shop around for the most appropriate product.
- Prominently highlight enhanced annuities, and the much higher income they can potentially offer, and inform customers whether they offer these products, and how to find out who does.
- Clearly signpost customers to advice and support, both from regulated advisers and government-backed advice organisations.
- Establish transparency in the annuity market so that customers have a clear picture of how individual providers’ product offerings fit in with the wider market.
ABI director general, Otto Thoresen said: ‘These changes are a big step forward for customers at retirement and were informed by extensive consultation and consumer research.
‘Improved processes, better signposting and transparency will combine to make customers more confident and more able to make decisions about their retirement income.’
Seek advice when you buy an annuity
Shopping around for the best annuity normally involves the use of an intermediary. Many people use a specialist annuity broker. Some IFAs offer a whole of market search, while others are restricted to a pre-selected panel.
It is possible to compare rates online through the FSA’s Money Advice Service, which publishes illustrative tables. Nationwide has just entered the annuity market, offering advice in branch.
Which? pensions expert, Ian Robinson said: ‘Shopping around is key to getting the best deal. It’s good to see the ABI encouraging this and making it more straightforward. Choosing the right type of annuity is important too – and for this specialist advice is invaluable.
‘Too many people opt for a single-life, level annuity, and fail to secure an income for their partner. Some people might also have guaranteed annuity rates built into their pension policy and an adviser can check for these and make sure they are not surrendered inadvertently.
‘It’s worth taking time over buying an annuity, as it’s a one-off purchase which sets your income for the rest life.’
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