Consumers warned on annuity deals
Published on 14 February 2014 03:30 PM
Consumers have been urged to shop around in order to make sure they get the best possible annuity deal for their retirement.
Figures from the Financial Conduct Authority (FCA) show that about three-fifths of people stay with their current pension provider when purchasing an annuity.
However, the advantage of switching can be the equivalent of saving an additional £1,500 into their pension pot ahead of retirement.
Annuities represent a one-off transaction made when someone retires in order to convert the money in their pension into a fixed annual sum that usually lasts until their death.
FCA urged pension providers to spell out how annuities work
There are a wide range of annuities on the market and they meet different needs.
Experts said that people in ill health, for example, could be much better off over the course of their retirement if they select an 'enhanced' annuity rather than a standard one.
The FCA, which regulates the market, has urged pension providers to do more to spell out how annuities work to help consumers choose the right retirement deal.
The authority has said that many complaints about annuities could have been prevented if the pension firm had communicated better.
The authority announced an inquiry into the market after finding that in around 8 out of 10 cases where people have stuck with their existing pension provider for an annuity, they would have been better off choosing another option.
Research on annuity provision revealed a 'disorderly market'
For standard annuities around 79% of people would be better off by shopping around and the figure rises to 91% for those buying enhanced annuities.
The annual income for those purchasing a standard annuity would rise by as much as £200 while for those seeking an enhanced annuity the potential benefit is £290 per year, the FCA said.
A spokesman said its research on annuity provision had revealed a 'disorderly market' and there are now plans to carry out a competition market study.
Officials at the FCA will consider whether sales methods by pension providers who want to hang on to customers put people off looking on the open market.
Immediate changes will be demanded if unsatisfactory practices are identified.
Copyright Press Association 2014