You are here: Home - Retirement -

Annuities: why advice needs to be part of the process

Written by:
The ABI’s move to publish sample annuity rates from all its provider members is a welcome step but nothing can compete with good old fashioned advice, writes Jenna Towler

A window into the world of annuities was opened when the Association of British Insurers (ABI) published its first table of sample rates.

The body said the move would make it easier for the 400,000 retirees who buy an annuity each year to compare what they are likely to get from different providers. At present, only a third of people bother to use the Open Market Option (OMO) – meaning the majority stick with the annuity on offer from their pension provider.

All ABI members who offer annuities to the public are now required to take part in the monthly poll.

The rates featured are based on certain criteria; the first batch are based on a 65-year-old from Manchester with a £18,000 pot buying level annuity. The difference between best and worst was considerable.

The best rate on offer, from Reliance Mutual, was £1,099.92 and the worst was £839.52 from Lloyds Banking Group, (made up of Scottish Widows / Clerical Medical / Halifax). That makes a difference of about £260 a year, which will, of course, accumulate over the course of a client’s retirement.

Elements such as postcode, health factors and marital status can be changed to illustrate their effect on the sample rates (see infographic, left).

On the whole the industry backed the Annuity Window, but agreed much more needed to be done to ensure retirees get the best from their pension pot.

Website Unbiased said while this information was good for the consumer the process of buying an annuity – which cannot be changed after point of sale – should be advice led.

Chief executive Karen Barrett said: “We do agree that there is a clear benefit in people taking time to review their options when it comes to their annuity purchase but we also recognise that many people simply won’t be able to confidently choose the best option for them.

“A general ‘shopping around’ message simply doesn’t go far enough – the industry needs to focus on clearly demonstrating the value whole of market advice can add to the process of securing an annuity income for the future – enabling consumers to understand all the options available and achieve the highest income possible.

“We are calling on the industry to work together to empower consumers to seek whole of market advice at retirement and to do this by clearly highlighting the need for and benefits of whole of market financial advice.”

Hargreaves Lansdown head of corporate research Laith Khalaf said the move would lead to more pressure on those companies offering low annuity rates.

“It also illustrates how consumers can benefit from the simple step of shopping around at retirement. The keystone to improving pensioner incomes is encouraging more people to do this, which rests on improving the communications sent to pension members before they retire,” he added.

Fidelity head of DC and workplace savings business said rates are only one part of what clients need to consider before making this “cliff-edge” decision.

“Securing retirement income on the basis of rates alone could lead to retirees being stuck with a pension for the rest of their lives that doesn’t suit their needs.

“While rates are important, we urge people to ensure that on top of finding the best rate they also seek professional support and guidance to help them get the right kind of income – not just the best rate,” Webb added.


Tag Box

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Why NS&I may need to trim interest rates for millions of savers

Savers continued to plough money into National Savings and Investment (NS&I) in April, though at a slower...
Why NS&I may need to trim interest rates for millions of savers

NS&I makes it easier to top up Premium Bonds

NS&I has started rolling out an alternative way to make payment, which should make it easier and more secu...
NS&I makes it easier to top up Premium Bonds

How to get 9% interest without tying up your savings for years

You don't have to lock your money away for years to get above-average returns on your savings.
How to get 9% interest without tying up your savings for years

Ryanair jetting towards US flights for £10

Ryanair is on course to achieve its long-held ambition of offering transatlantic flights to the US – and the...

Investing in car parks: a good vehicle for income seekers?

As the search for income continues, many investors are turning to alternatives, with car parks becoming increa...

A quick guide to guarantor loans – in association with Guarantor Loan Comparison

Considering a guarantor loan or becoming a guarantor yourself? Read our essential guide...

Results round-up: Companies to watch this week

Mulberry and more will face the music this week.

Product launches of the week

Select Property Group, Schroders, Leeds Building Society and more have exciting news this week.

Money Tips of the Week