The FCA is introducing new measures to encourage consumers looking to buy a lifetime income through an annuity at the point of retirement to shop around.
The new measures will introduce quote comparison templates showing like-for-like rates, which are compulsory for all providers or advisers to produce when providing annuity illustrations. However, before the quote comparison templates can be produced, consumers must confirm that they are happy for the provider to use their personal data to produce the comparison.
The quote comparison templates will either; show that the annuity income quoted is the best in the market, indicate that the customer could get a higher annual income elsewhere or highlight that the customer hasn’t consented to the use of their personal data for a comparison to be made. These new rules are due to go live on 1 March 2018.
However, Retirement Advantage has warned “that these new measures in themselves will not resolve the issue of consumer detriment because of fundamental flaws in the way the process works”.
Retirement Advantage has further commented that “quotes may be produced on a limited underwritten basis, or only provide standard annuity rates, which will not factor in health or lifestyle information, and therefore annuity comparisons on a like-for-like basis will also not include any medical benefits”.
This concern primarily needs to be taken into consideration when contacting a provider directly, as an adviser will help a consumer consider their individual circumstances, even if it hasn’t been shown using the comparison template, the firm said.
Previously, the FCA has found that 80 per cent of people who purchased an annuity from their existing provider could have received a better deal by shopping around on the open market.
Retirement Advantage has also calculated that up to 70 per cent of people could qualify for a better income in retirement due to health or lifestyle, but a majority of people still do not shop around.
To support this, Retirement Advantage previously found that “over the course of a 20-year retirement, the average annuity purchased will lose £8,460 of income simply because people did not receive the best deal.”
Retirement Advantage pensions technical director Andrew Tully commented: “Significant flaws remain where quotes produced in limited information will not highlight the true value of the annuity, and may well result in people locking into uncompetitive deals.”
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