Britain’s insurers are planning changes that could help people boost their pension incomes by thousands of pounds.
The Association of British Insurers (ABI) has this week set out a new code of practice aimed at ensuring that consumers approaching retirement don’t end up settling for an unsuitable or low-paying annuity.
An annuity is the product that turns an individual’s pension savings into a guaranteed annual income for the rest of their lives.
But the way annuities are sold at present has attracted much criticism in recent years.
Existing problems
According to industry figures, around a third of people coming up to retirement fail to shop around for the best annuity rate.
This group instead settles for the offer made by their pension provider and in many cases this provides a significantly lower rate of income than the best alternatives.
And often savers are not made aware that, by declaring any current medical conditions such as diabetes or heart problems, they could be eligible for a higher-paying “enhanced” annuity.
Plans to change the system
The focus of attempts to get consumers a better deal has focused on the communications sent out by pension firms in the months running up to each customer’s retirement date.
In September, the ABI announced that under a new code of conduct, pension firms would be banned from including application forms for their own annuities in the literature sent out before retirement.
This was intended to prevent savers automatically rolling over their pension funds to annuities with their pension providers rather than shopping around for a better deal.
Now the ABI says it also wants firms to clearly spell out the options available to their customers – including the fact that they have the right to buy an annuity from any company they like – in all communications.
Shop around
Firms which do not offer enhanced annuities must also make it clear to customers that such products are available, as well as explain the potential benefits.
The ABI’s Maggie Craig said: “We have worked very hard with our member firms to encourage more people to shop around at retirement, but there are still too many people who choose not to.
“They could be missing out on thousands of pounds of retirement income as a result.
"We want to do everything we can to help people get a good income in retirement which is why we are asking for views on the code we plan to introduce.
“We want to make sure our proposals will really make a difference so we will also research what will have an impact on customer behaviour to help people make good choices."
