A review into the annuity market by the City watchdog has found that many pension providers are not treating their customers fairly and failing to tell them that they can buy their annuities from rival providers.
The Financial Services Authority’s (FSA) review found that nearly 40% of the 55 annuity firms surveyed did not adequately inform their customers about the Open Market Option (OMO), which allows customers to shop around for an annuity rather than buy it from their pension provider.
"The decision on whether to buy an annuity from a current provider or to switch to another insurer on the open market can influence an individual’s lifetime income," says Sarah Wilson, a director at the FSA. "Poor communications from insurers may result in people making poor decisions or failing to take any action to maximise their retirement income."
Adequate information can come in the form of ‘wake up’ packs, which are sent out by pension providers in the run-up to retirement, but the Association of British Insurers (ABI) believes that these are unclear and has campaigned to improve the information customers receive.
Under the ABI’s new guidance, customers will now receive a clear, brief summary of the OMO, the different types of annuity available and other key issues and options they should consider as they approach retirement.
Maggie Craig, the ABI’s director of life and savings, said: "We are determined to improve the experience of customers approaching retirement. Buying an annuity is a once in a lifetime decision that can’t be changed, so it’s vital that customers are given appropriate help to make the right choices, and make the most of their retirement income."
Figures from the retirement income specialists Annuity Direct clearly show how shopping around for annuity can really pay off. For a £10,000 investment, a male aged 65 could receive £743 a year from Canada Life, compared with just £642 from AXA Sun Life. For a female of the same age, Canada Life offers £698 a year while AXA only offers £595. Annuity Direct states that the average annuity rates for both groups investing £10,000 currently stands at £712 and £664 respectively.
"Annuity rates vary from company to company and the top company will change whether you select single life or joint life," says Stuart Bayliss, director of Annuity Direct. "However annuity rates are the highest they have been for six years, so anyone retiring now owes it to themselves to get the highest income possible for the rest of their lives.