Annuity rates to be more transparentABI to publish typical rates from a range of firms
21 August 2013
The annuity market is set to become more transparent, as the Association of British Insurers (ABI) launches a new 'Annuity Window' initiative, publishing illustrative rates from a wide range of companies on its website.
The new initiative means consumers will be able to check where their pension provider comes in the rankings- and how competitive it is likely to be - making it easier to get the best possible deal when they come to draw a retirement income.
The new Annuity Window is compulsory for all ABI members selling annuities to the public and will feature rates from 24 companies.
Comparing annuity rates
Annuity rates vary widely, from firm to firm. Some are active in selling annuities to those about to retire, while others sell only to existing scheme members and may offer far less competitive rates. It is already possible to check rates by getting a quote from the Money Advice Service, but these tables don't show a full range of providers.
The difference between the best and worst annuity rates can be considerable. The ABI examples show a 30% variance. This means someone who ends up with a poor deal can get a almost a third less retirement income for the rest of their life. Until now, uncompetitive firms have not made their rates public, selling only to clients who don't bother to move elsewhere.
The ABI's new 'Annuity Window' initiative is designed to shine a light on this part of the annuity market, alerting customers to how far short poor rates fall from the best on offer.
How to get the best annuity deal
Annuity customers are urged to shop around and compare annuity rates before accepting an offer from their current scheme provider. This is known as the 'open market option' (OMO). Shopping around and switching provider is a basic right of all those buying an annuity, although many still don't bother, and only 30% actually switch.
Otto Thoresen, the ABI's director general said: 'Increasing life expectancy and an era of low interest rates makes the need to secure an adequate retirement income greater than ever. The industry is determined to do all it can to help people make the right decision to secure the best possible pension'.
Switching provider doesn't always deliver the best annuity, however. It's important to check to see if your policy has an in-built guaranteed annuity rate (GAR), which may be left over from a period of high rates and better than anything currently available. In the 1990 average rates were at 15%, whereas now they are normally lower than 6%.
Why it's important to get annuity advice
- Buying an annuity is a one-off, irreversible decision, which determines your pension income for the rest of your life. For this reason, it is important to get the best possible deal. An independent financial adviser can search the market for you and make sure you get the best rate.
- It is also important to choose the best annuity type- one that suits your circumstances. Those with partners should consider joint-life annuities, rather than single-life annuities- which stop paying out after the first partner's death.
- Those in poor health, or with lifestyle factors which might reduce their life expectancy should check their eligibility for an enhanced annuity- and make sure that they include providers which offer these in their search.
- An adviser can also look at alternatives to annuities, such as income drawdown, and at options such as taking a tax-free lump sum from your pension pot before you buy an annuity.