Help for you to get the best pension annuity rates when buying your pension annuities income. The pension annuities market is undergoing a great deal of change, and unfortunately much of it is doing little to enhance the pension annuity incomes of the 600,000 or so who retire each year and live off their hard earned savings and the State pension. People are being forced out of their defined benefit (DB) pension schemes as employers try to put a lid on their pension costs. Just last week, the Office for National Statistics (ONS) confirmed the extent of this so-called exodus when it reported that the numbers in these schemes run by private companies (as opposed to plans via local and central Government that naturally remain untouchable) has virtually halved over the past 13 years to around 2.6 million.
Leading pension consultant Watson Wyatt says this exodus is about to take on something of a fresh impetus as companies battle with mounting pension scheme deficits in the recession we are witnessing currently. Only last week, the Pensions Regulator actually accused some companies that operate defined contribution pension schemes of hanging workers out to dry when they get to their retirement. Under current scheme rules, any retiree with a defined contribution works pension, like a personal pension, has the right to take tax-free cash from their fund, typically 25% of the overall fund value. But with the balance they must secure a lifetime income, almost always by buying a pension annuity, best pension annuity rates, hopefully.
All retirees have the right to shop around using their open market option (OMO) for the best deal. This is worthwhile because they can usually find an annuity provider that will either pay them better annuity rates or offer a product more in line with their circumstances. However, the regulator says that less than a quarter of retirees are doing this. Although some people are content with the annuity offered by their pension scheme, even if inferior, the regulator says shopping around is not happening enough because many pension scheme managers are not really playing fair.
They are not highlighting the OMO value to members because they don’t want to, just possibly for commercial reasons. Of the pre-retirement paperwork the regulator has examined from nearly 100 pension schemes, more than half is not in their opinion fit for purpose. Alarmingly, three out of ten pension schemes are in breach of ‘retirement disclosure regulations’. Therefore, the Pensions Regulator is writing to 4,500 schemes asking them to undertake a review of their pre-retirement literature urgently to ensure scheme members are made aware of all options.
It is great news that the regulator is flexing its muscles because the Financial Mail, amongst others, has long maintained that too many retirees are given a raw deal when turning their pension fund into retirement income. Thankfully, the Regulator and Financial Mail are not alone on this. Last week, the Pension Income Choice Association (PICA) was launched with the aim of ensuring more retirees maximise their retirement income. On its wish list is an overhaul of the information being sent out in advance of retirement with shopping around for better pension annuity rates becoming the default option. It also wants a register of financial advisers that will assist those with small pension funds (those of less than £50,000) get the best deal.
PICA believes that encouraging more retirees to get the best income from their pension fund is socially desirable. It increases the spending power of these retirees, boosting the economy, and is good for Government because it increases its’ tax revenues (pension annuity income is taxable) and reduces the reliance of some people on having to claim means-tested benefits. The only people it is not good for are those annuity providers (the big insurance companies) who have a vested commercial interest in maintaining the status quo. They want to continue to fob off retirees with poor value pension annuities and don’t welcome PICA’s arrival on the scene. We say, good on you, PICA, even if you are only backed so far by Aegon, MGM Advantage, LV= (was Liverpool Victoria), and Partnership.
