Annuity providers will soon be compelled to outline all the necessary information to help people shop around for the best deal.
The Financial Conduct Authority (FCA) today announced that pension companies will be required to inform customers how much they could gain by switching provider before they purchase an annuity.
The new rules will come into force in September 2017.
Find out more: annuities explained – see our video guide
People are not shopping around
This intervention follows evidence suggesting that many people aren’t aware they can probably get a better annuity rate, and therefore more retirement income each year, by switching companies.
The FCA previously found that 60% of customers were not switching providers when they bought an annuity and up to 80% of these customers could get a better deal on the open market.
Under the FCA’s proposals, firms will be required to deliver information in a personalised form in a format set out by the regulator. Companies will need to detail how much the highest quotation on the open market differs from their rate and provide customers with a link to the best quote.
Which? research shows you can get a third more
In October 2016, Which? explored the annuity rates on offer for two different scenarios and found that you could be offered up to 31% more a year depending on your provider. The huge gap between the best and worst deals comes despite annuity rates being at historical lows.
We found that for a couple aged 70 who were both smokers with high blood pressure, with a £100,000 pot wanting a joint-life fixed-rate annuity paying 50% to their nominated beneficiary, rates varied from £4,343 (Standard Life) to £5,700 (Aviva) per annum. In this scenario, your choice of annuity provider could make a difference of nearly £20,000 over the average lifetime.
Standard Life is one of six providers to have withdrawn from offering the open market option since the pension freedoms were announced.
Ability to ‘make better decisions’
Christopher Woolard, FCA executive director of strategy and competition, said: ‘Although sales have declined since the pension freedoms were introduced, annuities still play a significant role in retirement provision.
‘It’s important that consumers shop around to get the best deal for them – yet our previous work found that very few people actually did so.
‘We believe that the proposals we have outlined today will engage consumers and allow them to make better decisions, increasing shopping around and competition across the market.’