You shouldn’t wait for the ABI’s new code of conduct for annuity sales if you’re looking for a higher annuity income. Many thousands of people risk a poorer retirement while the financial services industry wavers over finding better ways to help turn hard earned pension savings into a higher annuity income. Complicated products and less than satisfactory communications means that workers heading for their retirement often miss out on the best annuity rates.
They might fail to select an annuity income that increases over time to protect against ongoing inflation, or they might miss out on an annuity that provides for a husband or wife (or partner) after their death, or they might fail to get a higher income from an enhanced annuity due to them having medical or lifestyle conditions. Ignoring the open market option, which gives you the chance to shop around to find a better deal at retirement rather than taking an annuity from your existing pension company, can cost you thousands of pounds of vital income over the course of your retirement.
Around 44% of pension savers switched to a higher annuity income in the second quarter of last year, up from about 35% in the same period in 2009. Just last month, December, the Association of British Insurers (ABI), put forward a new code of conduct for future annuity sales. The plans compel all insurance companies to issue standard letters setting out workers choices at retirement. Insurers would have to point out that going elsewhere using the open market option might get you a better deal.
At the earliest, these plans to help people get the best annuity rates would be ready in March, but will not come fully into being until a year later at the latest. By then, a further 750,000 people will have retired. Yvonne Braun, of the ABI, has stated that this one-year deadline for implementing these new plans is a maximum, and she hopes that those insurance companies who pride themselves on proving good customer service will do it quicker. Indeed, Alan Bradbury, of insurer Phoenix, suggests that the customer has to be placed at the front of the process, as they don’t want to be in the position of making money out of them taking the wrong choices.
Industry critics worry that insurance companies are trying to make retirement planning and getting better annuity rates too complex. Alan Higham, of leading annuity adviser Retirement Angels, states that what is missing from these new proposals is a simple message, preferably from an independent body such as the DWP, as there is a need to tell someone with a £40,000 pension fund that “This £40,000 pension fund is your life savings. You have to make the right decision on how to turn it into a retirement income. The difference between you taking a good and a bad decision could be around £8,000 over your lifetime. If you are in any doubt about what you should do seek some advice”. This should help.
