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New annuity code to help people get a better pension
Insurers have signed up to a code of conduct to do more to help retirees buy the best annuity with their life savings.
by Michelle McGagh on Feb 26, 2013 at 14:29
Getting the best pension income deal will become easier for consumers after 1 March as insurers sign up to a code of conduct to help make buying an annuity more transparent.
The Association of British Insurers (ABI) has drafted the code to help the 400,000 people who buy an annuity each year better understand their options.
Most people when they retirement turn their pension pot into an income by buying an annuity – an insurance policy against living too long which pays out until the day you die.
However, thousands of people are missing out because they are not shopping around for the best deal. Many retirees assume they have to buy an annuity from the insurer with which they have saved their pension, but this is not the case. They are entitled to use the ‘open market option’ (OMO) which means they can buy an annuity from any insurer in the market.
People are also missing out on a better deal because they are failing to inform insurers of health conditions and unhealthy lifestyles, both of which will allow them to take out an enhanced annuity. Enhanced annuities pay a higher income because the insurer thinks your lifestyle or state of health will shorten your life.
The ABI said one in four people do not understand their retirement options and one in three do not feel informed enough to compare quotes from annuity providers.
The code will try to provide clear and consistent information to consumers to help them better understand their options, choose the right annuity for their circumstances and shop around for the best deal. It will be enforced on 1 March.
Insurers will ensure consumers receive the right pension by:
- Providing clear, timely information to those approaching retirement and at least two years before retirement insurers will encourage the customer to look at their options. Six months before retirement and at least six weeks before retirement the insurer will send details of various options, including combining small pots and shopping around.
- Explaining the different ways to take retirement income, including providing for dependents, whether they would be eligible for an enhanced annuity, and how to protect income from inflation.
- Encouraging consumers to shop around for the right deal. Insurers will also highlight sources of further advice and no longer include annuity application forms with information so the consumer doesn’t automatically buy their annuity form their pension provider.
The ABI will also publish a league table of annuity rates so it is easier for consumers to see whether they are getting a good deal.
Otto Thoresen, ABI director general, said: ‘Increasing life expectancy means that many people will be receiving a pension for longer than they were paying a mortgage so the need to make the right decisions at retirement has never been more important.
‘The timely, clear and relevant information provided under the code will significantly increase the number of people reaching retirement with the confidence to make the right pension decision.’
The initiative is also being supported by the government.
Economic secretary to the Treasury Sajid Javid said: ‘Raising awareness of the crucial decisions people need to make about their retirement has benefits both for individuals and for the industry as a whole.’
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