Buying an annuity these days can be fraught with difficulty, what with falling rates, lower incomes and providers disappearing from the market at an alarming rate. Many blame the pension freedoms, which essentially removed the obligation to buy an annuity, but what if you still want a guaranteed income? Luckily, the regulator is stepping in, which means it should soon be easier to find the annuity that meets your needs – because your provider is going to help.
The Financial Conduct Authority (FCA) has announced plans to require annuity firms to specifically tell their customers how much they could gain from shopping around, which means you can be confident you're getting the best deal possible. This could make a huge difference to the kind of income you can achieve: the regulator had previously found that 60% of customers were not switching providers when buying an annuity, and that up to 80% of those could get a better deal if they'd done so, so this really is great news for consumers.
The plans revolve around what's called an "annuity comparator" to encourage shopping around, which will take the form of an information prompt before an annuity is purchased. Essentially, firms will be required to show the difference between the provider's own quote and the highest quote available on the open market, together with a prompt to help the customer access the best quote. Within that, firms will be required to give specific information about the annuity, including whether it's a single or joint life product and whether the rate is guaranteed.
Testing showed that 27% more consumers went on to compare annuities from different providers when they were shown the income that could be achieved on the open market, so it's hoped that the changes will transform the market.
"Although sales have declined since the pension freedoms were introduced, annuities still play a significant role in retirement provision. It's important that consumers shop around to get the best deal for them - yet our previous work found that very few people actually did so," commented Christopher Woolard, the FCA's executive director of Strategy and Competition. "We believe that the proposals will engage consumers and allow them to make better decisions, increasing shopping around and competition across the market".
Many in the industry agree, and considering the state of the market, it couldn't come at a better time. Richard Eagling, head of Pensions at Moneyfacts, said it's a "welcome and long overdue move. [It] may seem a relatively simple idea, but its impact could be highly significant for those who follow through on this prompt".
"For too long, far too many consumers have been annuitizing at lower rates than they could have obtained elsewhere, simply by bypassing the shopping around process and remaining with their existing pension provider for their annuity purchase. The potential benefits of this new rule to a retiree's income could be highly significant, given that the difference in annual annuity income between the highest and lowest open market annuity rates on offer is currently 12%.
"This move should also put more pressure on annuity providers to offer more competitive rates, as there will be no hiding place for those who offer poor value."
All in all, it's looking like there could be a bright future ahead for the annuity market. Our latest figures even reveal a slight turnaround in the sector, with annuity rates having rallied after a tough few months, and it's hoped that the new rules will push rates further upwards. The only slight downside is that we have to wait until September 2017 for the new rules to come into force, which means that if you want to grab the best rates in the meantime, you'll need to be proactive!
Don't wait for your provider to tell you what other annuity rates are available – get out there and start comparing the options yourself. Start the process by contacting our no obligation annuity planner, and see how far your retirement savings could go.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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