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Why scale hinders IFA solution to mass-market annuities advice

Why scale hinders IFA solution to mass-market annuities advice

Savers’ poor annuity decisions (or the lack of any decision) are costing them £1 billion annually. Is there an advised solution to the problem or will consumers have to choose between restricted panels or information-only services?

The Association of British Insurers’ (ABI) code of conduct comes into force in March. It requires members to provide clear communications to customers, highlight the existence of enhanced annuities, signpost customers to advice and support and establish annuity market rate transparency. That is alongside the Financial Services Authority’s well-publicised probe of annuity pricing.

Alan Higham, director of annuity adviser Retirement Angels, says rate transparency will expose providers who gain from customers’ failure to shop for a better rate.

‘If an insurance company is off the pace for annuity savings, and their customer retention rate stays the same, what are they saying to their customers?’

Advice gap remains

But it will do little to tackle the difficulties in providing advice to some of the annuity market.

Malcolm Small, director of policy at the Tax Incentivised Savings Association (Tisa), points out that somebody with a £30,000 pension will not pay for advice but will self-select.

‘I think the National Employment Savings Trust’s annuity panel approach is interesting. I see more people doing that: there’s scope for a lot more information around annuities; one-stop shops, and automated solutions.’

Hargreaves Lansdown head of pension research Tom McPhail (pictured below) says the problem is one of scale: ‘IFAs don’t have the capacity to deliver regulated advice to the 400,000 people who buy an annuity every year, and at a worthwhile price for the varied pocket.’

Unless the annuity advice market is properly cracked, the need for better consumer information can only grow.

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