Annuity Providers Forced To Show Savers Best Rival Deal First, before offering their own.

Buyers must be told difference in pounds and pence annual income. Rival quotes to be taken from comparison tool covering every annuity firm. Many still opt for annuity offered to them, by the firm where they built up their pension. FCA wants to ensure savers know how much they can gain from shopping around. These will be under proposed rules from September 2017.

Annuity Providers Forced To Show Savers Best Rival Deal First

Buyers will have to be told the difference between a provider’s own offer and the best deal available – in pounds and pence annual income – from a comparison tool covering every firm in the market.

The proposal is aimed at ensuring older people realise how much they could gain from shopping around. So they can get the maximum income to see them through retirement. Official studies showing many still get stuck with shoddy deals.

Annuity Providers Forced To Show Savers Best Rival Deal First

 Funding retirement: Annuities allow savers to exchange pension pots for a guaranteed income that lasts the rest of their lives

The Financial Conduct Authority has previously ordered pension firms to rank annuity quotations. This so that people can easily identify the best ones, and to improve information so retirees are not left out of pocket.

Annuities allow savers to exchange pension pots for a guaranteed income that lasts the rest of their lives. Many deals are low-value after years of rock-bottom interest rates, rising longevity, and declining purchases.

Nevertheless, many still simply opt for the annuity offered by the firm where they have built up a pension. Rather than shopping around for the best one.

The crackdown announced today, proposed for launch in September 2017. This follows an FCA investigation revealing that upwards of 90,000 people could be in line for compensation. There is  damning evidence emerged of ill people being missold annuities that didn’t take full account of their health.

The failings mean that thousands of retirees in poor health could have been deprived of hundreds of pounds every year. This is after spending decades grafting to put money aside for their old age. At least two unidentified annuity providers, and possibly more, now face regulatory action.

Annuity Providers Forced To Show Savers Best Rival Deal First

Annuity Providers Forced To Show Savers Best Rival Deal First

WHY ARE ANNUITIES SO UNPOPULAR? 

Buying an annuity means using your pension pot to purchase an insurance product that provides a guaranteed income until you die. There’s no chance of running out of money altogether.

Annuities used to be the main way people funded retirement, but they are now regarded as poor value and restrictive.

Returns are low after years of low interest rates, rising longevity and declining purchases.

Meanwhile, many people don’t shop around for the best deal. Some mistakenly buy unsuitable products that don’t take account of their health or provide for their spouse after death.

Sales of annuities plummeted after pension freedom was announced. Now, many more people are opting for income drawdown schemes. This allows you to take sums out of your pension pot while the rest remains invested.  

Annuity Providers Forced To Show Savers Best Rival Deal First

However, income drawdown schemes are complicated and involve investment risk.

The FCA says the number of annuity purchases has fallen since April 2015, but that it remains significant. This pension freedom gave more people the option to stay invested and draw down an income instead.

‘Annuities have been sold at a rate of roughly 80,000 per year following April 2015,’ it says. ‘Our latest data suggest that 18,731 annuities were purchased in the quarter from January to March 2016.’

The watchdog is now consulting on when an ‘information prompt’ should be given to annuity buyers. The scope of it and the content, but its research suggests a personalised version produces the largest increase in shopping around.

‘When shown the annual increase in income that they could gain from purchasing on the open market. 40% of participants went on to compare products from different providers. We therefore, propose requiring firms to include certain information in a prescribed format. This will be communicated in an annuity quotation to a consumer.’

Annuity Providers Forced To Show Savers Best Rival Deal First

The FCA says other important information must be given, as follows:

* The size of the pension fund being used to purchase an annuity

* Whether the annuity is single life or joint life, meaning whether or not it provides for a spouse after the holder’s death

* If payment is in advance or in arrears of the start date

* Whether the rate of income paid by the annuity is guaranteed for any period

* Whether the annuity income paid will increase in line with inflation or some other specified rate

* The provider’s own quote

* How to shop around, including the phone number and web address for the Money Advice Service. 

Annuity Providers Forced To Show Savers Best Rival Deal First

‘The pension freedoms have given savers a far wider range of options than ever before. Providers fully support efforts to encourage savers to shop around. Rob Yuille, head of retirement policy at pension industry body the Association of British Insurers stated. 

‘Customers should have the information they need to make the right decision for them. Annuity providers will look at what the FCA has proposed. Then provide helpful feedback on how to make the plans work successfully for customers in practice.’

 

Annuity Providers Forced To Show Savers Best Rival Deal First

Annuity Providers Forced To Show Savers Best Rival Deal First

‘Millions of savers have already lost out on thousands of pounds in retirement income by failing to shop around. They may be missing out the best annuity rate, and the level of shopping around remains persistently low. Tom Selby, Senior analyst at AJ Bell, stated.

‘Several major providers to pull out of the open annuity market since the pension freedoms were announced in 2014. This raises serious concerns about a lack of competition and the impact this could have on the rates offered to savers.

‘Arming people with information about annuity deals available elsewhere should help. By redressing the competitive balance in the annuity market and holding insurers’ feet to the fire when it comes to pricing.

Annuity Providers Forced To Show Savers Best Rival Deal First

‘The effectiveness will depend on the extent to which consumers actually read and react to the information provided. Policymakers must closely monitor how shopping around figures change following its implementation.’

‘The problem is making it easy for investors to understand the benefit of shopping around. And to then act on that knowledge, has vexed policymakers for years.Tom McPhail, head of retirement policy at Hargreaves Lansdown stated.

‘This proposal is to give annuity purchasers a pounds and pence disclosure. To see how much better off they could be will solve half the problem.

‘The bit still to be dealt with is the fact that 75% of annuity purchasers could get an enhanced annuity. That won’t be reflected in this proposed disclosure.

‘The good news is that the FCA knows this and will soon be taking steps to address that too. This will be through revisions to the pre-retirement “wake-up” packs.’

 ‘Any attempt to encourage more people to get better value from their retirement savings is welcome. Although I fear this may not be enough to solve the issues with the market. Andrew Tully, pensions technical director at Retirement Advantage, stated.

Annuity Providers Forced To Show Savers Best Rival Deal First

Annuity Providers Forced To Show Savers Best Rival Deal First

‘There are numerous technical issues to overcome in the practical implementation of a comparator tool. Not least of which is ensuring annuity rates quoted reflect the individual’s health and lifestyle.

Tully suggested another option could be to introduce a new requirement. That people need to get a number of quotes before they can purchase an annuity.

Richard Eagling, head of pensions at Moneyfacts, said: ‘For too long, far too many consumers have been annuitising at lower rates than they could have obtained elsewhere. By simply by bypassing the shopping around process and remaining with their existing pension provider for their annuity purchase.

‘The potential benefits of this new rule to a retiree’s income could be highly significant. Given that the difference in annual annuity income between the highest and lowest open market annuity rates on offer is currently 12%.

‘This move should also put more pressure on annuity providers to offer more competitive rates. There will be no hiding place for those who offer poor value.

Annuity Providers Forced To Show Savers Best Rival Deal First

‘The only shame is that customers will have to wait until September 2017 for this new requirement to come into force. The FCA rule has not gone further by making shopping around for an annuity compulsory.’

‘The failure of some providers to explain the benefits to consumers of shopping around. This has been a longstanding problem when purchasing a guaranteed income for life product.’ Stephen Lowe, group communications director at Just Retirement, stated.

‘The FCA is taking positive steps to address this problem. We think there is a strong case to go further. To make it a requirement for all purchases to be made via the open, external market. Ensuring consumers get the best deal.’

Annuity Providers Forced To Show Savers Best Rival Deal, First
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2 thoughts on “Annuity Providers Forced To Show Savers Best Rival Deal, First

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