It has published specimen annuity rates offered by its members.
The Association of British Insurers (ABI) is to publish specimen annuity rates offered by its members to highlight the importance of shopping around for the best deal when it comes to buying an annuity.
The publication is part of the ABI’s Code of conduct on retirement choices, which was launched in March.
The specimen annuity rates, which are based on 12 customer profiles. are designed to show people the rates that are available in the market, and highlight the need for them to get expert advice.
Otto Thoresen (pictured), director general at the ABI, said: “Increasing life expectancy and an era of low interest rates makes the need to secure an adequate retirement income greater than ever.
“The industry is determined to do all it can to help people make the right decision to secure the best possible pension. The [code] will help people approaching retirement have the confidence to make the right pensions decision.”
Tom McPhail, head of pensions research at Hargreaves Lansdown, added: “This is a welcome development. With the demise of guaranteed final salary pension schemes, millions of people now have to rely on their private savings to deliver a decent standard of living in retirement.
“It is highly unlikely that their existing pension provider will offer them the best deal, so shopping around is absolutely vital. Pension savers have to make sure that they get the best possible annuity and even consider whether they want to buy an annuity at all.
“The ABI should be applauded for taking this initiative, however, there is still more work to be done to make sure every defined contribution pension investor quickly and easily shops around for the best deal as a matter of course.”
Consumers must shop around for the best annuity, but providers haven’t always made it easy. Making it compulsory for ABI members is obviously a good thing.
But consumers must also make sure they get the most up-to-date quotes because an initial quote may change up until the annuity is purchased. And as not all pension providers are ABI members the ‘window’ is not exactly panoramic! One of the most competitive providers of healthy annuity rates is not included, and some of the other quoted rates are only available to existing savers.
Despite these shortcomings, any initiatives to educate consumers about their options and encourage transparency in the annuity market are very welcome.
The Annuity Window lifts the lid on just what rates insurance companies are providing. It is a positive step forward and is likely to 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.
The ABI’s publication of example annuity rates is to be welcomed, and trustees of occupational DC schemes may wish to direct their members to the examples to assist them in exercising the open market option. People often don’t shop around enough between insurers, and don’t realise how disclosing details about their health can increase their annuity income. The ABI examples will help demonstrate in simple terms just how much annuity income can vary and hopefully encourage people to look around more carefully to achieve a better retirement income.
It is encouraging, of course, that providers are being made to be more transparent over annuity rates and to compete on the open market, but will they give true rates? And live rates won’t be published, so prospective annuitants will need to be alert to rates changing. And will all providers be in there?
It still means that it is imperative people go to a specialist adviser to make sure they are getting the best deal – which I hope the ABI will be making clear.