The FSA is maintaining pressure on life companies to keep their literature free of jargon on pension annuities. One recent FSA investigation found that 4 in 10 annuity ‘wake-up’ packs – sent by insurers to savers close to retirement to explain how they could secure a bigger pension annuity – were confusing.
A ‘significant number’ of firms failed to explain that calling up rival insurers to get a different quote could mean a bigger annual pension annuity, says Sarah Wilson, the FSA’s director for insurance, in a recent speech to the Institute for Economic Affairs. ‘Similarly, very few firms mentioned the advantages of shopping around for customers with health problems, who could be better off buying an annuity from providers offering “impaired life’” or “enhanced rate” annuities,’ she adds.
The FSA is due to publish its conclusions later this week into this issue and another – the alleged ‘delays’ in transferring annuity funds from one life company to another, which can leave savers out of pocket. Such delays could cost the annuitant hundreds, or thousands, of pounds a year.
‘When you’ve saved for your whole working life and your annuity choice comes down to one moment, we have to make sure that all customers have a clear understanding of what’s available,’ says an FSA spokesman.
Looking at annuity rates; at their peak in 1990, the best annuity rates hovered at around 16 per cent, this means you would get £16,000 a year for every £100,000 of a pension pot saved in a ‘defined contribution’ pension (as opposed to a final salary scheme, where the employer payout depends on your longevity at the firm and your pay).
But that was then, a predominantly high-inflation, high interest-rate period. Annuity rates then began a relentless downward march to less than 7 per cent in a fairly smooth trend – primarily as a result of falling yield rates and our rising longevity – but since early 2007 they have begun to rise significantly (see table, left). Early last year, the best annuity rates fluctuated at or around 6.92 per cent. Now they are nearer 7.85 per cent.
