Out-Law News 2 min. read
22 Aug 2013, 9:27 am
Simon Tyler of Pinsent Masons, the law firm behind Out-Law.com, said that the comparison tool published by the Association of British Insurers (ABI) would alert consumers to the importance of "shopping around" for the best product to meet their needs. The ABI is publishing specimen annuity rates offered by its members based on 12 example customer profiles, which it plans to update regularly.
"Buying an annuity is no simple process," Tyler said. "Different varieties of annuities are available: with or without inflation proofing; with or without a spouse's pension; with or without guarantee periods. The amount quoted will usually depend on where the individual lives and on his or her state of health."
"The ABI's comparison tool cannot cope with all this complexity; however, it does provide a useful starting point. And it alerts individuals to the importance of shopping around, rather than blithely just accepting the annuity quotation from the insurance company they invested their pension savings with," he said.
An annuity is a policy from an insurance company that converts a pension fund, or part of a pension fund, into an annual income for the rest of the individual's lifetime. Over 400,000 annuities are sold each year, and getting the right deal can mean thousands of pounds more income during retirement, according to the ABI. Since 2002, pension providers have been required to disclose that savers have the right to shop around for a policy, rather than accept the one offered by their pension provider.
The ABI's new tool forms part of its Code of Conduct on Retirement Choices (41-page / 90KB PDF), which was originally published last year. This Code requires members to provide clear, timely communications to their customers to help them consider their options in the run-up to their retirement, including an explanation of the different ways to take retirement income and encouragement to shop around for the right deal.
The new tool lists sample annuity rates for 27 insurance companies that are ABI members, based on the rates on offer in July 2013. These will be updated "regularly", the ABI said. The tool is not intended to be a price comparison website, as annuity rates can change daily. Consumers can choose from typical rates offered for single or joint policies, and specify different health and geographic criteria.
Insurance expert Tobin Ashby of Pinsent Masons said that the ABI's initiative was another step towards achieving the transparency in the annuities market that the financial services regulator, independently of the industry, was seeking. The Financial Conduct Authority (FCA) is currently carrying out a 'thematic review' of annuity pricing, and is expected to publish its conclusions in April.
"The FCA's process is set to go much further than the ABI's; with proposals for an industry roundtable next year on transparency in the annuity market to discuss the results of its thematic work and consider action," Ashby said. "The FCA may by then be looking at going further and consulting on new rules for the annuities market."