Customers would be willing and happy to shop around for the best pension annuity rate if they knew how to. It’s all about access to advice. The literature has got to clearly explain that they’ve got a right to shop around, but also how to do it. According to the ABI, about 73% of the conventional annuity market goes through a financial adviser. Of those broked pension annuities, 42% purchase an annuity with the existing provider, and 58% change providers. If you then look at the part of the annuity market that is not broked, 95% of people just buy the pension annuity with their existing provider. You get a much much better deal if you go and talk to a financial adviser.
What we need is that the open market option is promoted, and providers and IFAs have to streamline a process so that it is easy to understand.
If either by compulsion or by the industry finally waking up and realising it’s got to act in investors’ interests, you create a market where it becomes the norm that people do shop around then a lot of insurers will realise that there’s money to be made and five years from now we’ll be witnessing a different industry.
The internet has a big part to play. People wouldn’t dream of taking car insurance or home insurance without going on one of these comparison websites. If people find it quite easy to use these sites, maybe there will be a move to go down that route with annuities.
