A new code of conduct for annuity providers has been launched today, which aims to encourage pension savers to scour the market for the best possible retirement income plan.
The key point in the Association of British Insurers' (ABI) code is pension providers must not push their customers into taking their annuity — a product you buy with your pension pot that gives an you income until death. Instead, they should encourage them to check rates from across the market.
Once you have purchased an annuity you cannot change your mind, so it is essential you make the correct choice (see the Annuities Guide).
According to financial website Moneyfacts, a 65-year-old retiree with a £50,000 pension pot looking to buy a standard annuity could wipe off £400 a year from their annual income by making a bad choice. That would add up to £8,000 if they live for another 20 years.
Currently, only 40% of customers scour the market, according to adviser firm Hargreaves Lansdown.
The ABI says it expects members to stick to the code. But the charter is voluntary, as it's not backed by the regulator, so a firm will not be held to account if it breaks it.
In January, the Financial Services Authority (FSA) announced it is launching a review into whether retirees are getting a fair deal when buying annuities.
What's in the new code?
The new code of conduct means providers should:
- Clearly highlight the benefits of doing your own research by scouring the market for the best deal, known as the 'open market option'.
- Provide clear, timely information for people to understand their options. This includes customers being encouraged to consider their options two years before they retire.
- Explain the different products available. This includes whether they are eligible for a bigger payout if they have a medical condition.
- No longer put application forms in retirement packs, which hinder customers from taking the open market option.
'Increase consumer confidence'
ABI director general Otto Thoresen says: "This code is the latest initiative in the industry's commitment to helping meet customers changing pension needs.
"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."
Economic Secretary to the Treasury Sajid Javid says: "I welcome the ABI’s code of conduct in giving customers clearer information and helping people get the best pension deal possible.
"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."