Labour has called for the use of specialist independent financial advisers (IFAs) at retirement to be compulsory, with the aim being to ensure retirees get the best annuity rate, and therefore retirement income, possible.
Currently half of all annuity sales come from an individual buying an annuity directly from an insurance company without seeking specialist advice beforehand, and there are fears that this leads to many being short-changed.
According to Hargreaves Lansdown the lack of competition between insurance companies means few are compelled to offer the best deals, with their research finding that about a third of insurance companies offer rates which are as much as 10% below those of their competitors.
Additional research from MGM advantage paints an even more worrying picture, with the difference between the best-performing enhanced annuity rates and the worst-performing standard rates being as much as 38%.
This all means individuals could potentially be losing out on thousands of pounds of income over the course of their retirement and is why seeking advice is essential, and if the proposed Labour amendment goes through it could become a legal requirement.
The party has suggested changes to the Pensions Bill which would see the use of annuity IFAs at retirement becoming standard for all auto-enrolment schemes – pensions savers would either have to be referred to a specialist IFA service by their scheme or the scheme would have to offer such a service itself, thereby ensuring the individual can shop around to secure the best deal for their retirement needs.
Tom McPhail, head of pensions research at Hargreaves Lansdown, is encouraged by the proposed changes and realises the value that independent advice can offer. "Not only do retirement brokers help investors to work out how to draw on their retirement savings, they perform a vital role in helping them boost their retirement income by thousands of pounds. An increase of 30% to someone's retirement income is fairly typical and they benefit from that increase for the rest of their lives," he said.
Other proposed amendments to the Bill are also expected this week, which is due to be discussed in the House of Commons tomorrow.
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