Feb. 4, 2013
-- Nick Poyntz-Wright of the FSA said "An annuity purchase is a one-off decision that has long term consequences for individuals if they get it wrong. We want to understand the level of detriment for consumers if they do not shop around to see if there are ways to make this market work better for consumers."
The National Association of pension funds complained that the way annuities are sold might be costing half a million retirees around £1bn in future lost pension income.
The problems stems from not shopping around and essentially a lack of knowledge, the question is how can the lowest annuity providers such as Standard Life and Prudential be receiving lots of business if a simple search finds that more income can be received just by shopping around. As we are talking about income for the rest of a persons life then it would suggest that pensioners are simply not looking on the open market, because its not a difficult task to do a best annuity comparison search, whether it be on the internet or via an IFA.
Hopefully once the FSA have conducted this investigation they will come up with a plan that will publicise to consumers about how they can get a better annuity rate by shopping around. Although it must be said that this is something that really has been in the public domain for a long time, in fact since 2002 when the ABI told all insurers to tell customers to look at the open market. Obviously this has not worked and one reason may be because pension plans are so complicated and the open market option form is hidden away in the pension packs and often just gets lost in translation.
My recommendation would be for each insurer to clearly set out in a simple 1 page document what somebody needs to do to get themselves more income in retirement. The start of that page should be to tell the customer to shop around.