New annuity rules have ‘fundamental flaws’
The new rules go live on Thursday 1 March 2018. They set out a specific template where providers will need to show like-for-like rates when producing annuity illustrations.
Retirement Advantage has warned that consumers may still not get the information they need: quotes may only provide standard annuity rates, for example, which will not factor in health or lifestyle information, and therefore annuity comparisons on a like-for-like basis will also not include any medical details.
The Financial Conduct Authority (FCA) has previously found that 80% of people who purchased an annuity from their existing provider could have received a better deal by shopping around on the open market. Retirement Advantage said up to 70% of people could qualify for a better income in retirement because of health or lifestyle and yet the majority of people do not shop around.
Andrew Tully, pensions technical director at the group, said: ‘These changes, although introduced with the best intent, will not improve the outcomes for thousands of people who continue to value the security of a guaranteed lifetime income from an annuity. Significant flaws remain where quotes produced on limited information will not highlight the true value of the annuity, and may well result in people locking into uncompetitive deals.”
The annuity market is expected to be worth around £4bn in 2017 with 40,000 customers looking to secure a lifetime income.
Top tips to get the best annuity deal
Retirement Advantage gives the following tips:
- Always shop around for the best annuity rate (as well as the right guarantees).
- Consider the most suitable options for your circumstances, for example if you want income or a lump sum to go to your family after your death, or if you want income to increase to keep pace with inflation.
- Always tell your pension company if you have a health or lifestyle condition, for example diabetes or if you smoke. You will likely qualify for a higher income (through an enhanced/impaired annuity).
- Get professional financial advice; the adviser will ensure you have the most appropriate annuity (or combination of annuity and drawdown) for your individual circumstances, as well as the most competitive rate.
- Often people don’t think they qualify for an enhanced rate, this is often because of the questions asked, so getting advice, and ideally, a telephone interview with the annuity provider, can improve the annuity rate.
- Think about buying annuities in stages, rather than banking all your money on the rate available on one particular day; new retirement accounts provide the flexibility to do this simply and easily.
- Remember you don’t need to choose either annuity or drawdown, a combination of the two may be the most suitable option.