money
An Age~Old
Problem
By Vicky Shaw
A new probe has been
announced into the
retirement annuities
market, after the City
regulator found it’s
not working well for
consumers.
An annuity is a one-off purchase that many people
- around 420,000 a year - will make when they are
approaching retirement. When you buy one, the
money you’ve built up in your pension savings is
converted into a yearly income, normally lasting for
the rest of your life. Obviously, it’s important to get
such a ‘once in a lifetime’ right; but the new findings
by the Financial Conduct Authority (FCA) suggest
that many people are not.
Part of the reason is that there’s a tendency when
people are buying annuities to stick with their existing
pension provider, rather than looking elsewhere where
you might find a better rate.
The FCA found around eight out of 10 people who
had stuck with their existing pension provider to buy
an annuity could have been better off by shopping
around and switching. On average, the benefit of
switching would equate to someone having saved an
extra £1,500 into their pension before they retired.
So why don’t more people switch?
Well, it could be that the wide array of annuity
products available leave the customer feeling
confused. Some provide for you alone while others
will help you to provide for a loved one. There are
also annuity products that cater for people with ill
health, such as smokers, and these can often provider
higher incomes as the person is expected to have a
shorter lifespan.
Martyn James, spokesman for the Financial
Ombudsman Service (FOS) says picking the right
annuity “can feel like a minefield”. With the baffling
terms and conditions often used, “it’s inevitable
that people rely heavily on the advice they get from
big business. “We’d like people to feel empowered
to speak up if they don’t understand what they’re
getting into.”
The service wants to see providers doing more to
explain to people “in plain English” exactly what an
annuity is and how it works.
Ros Altmann, an independent pensions expert and
a former Downing Street adviser, adds that even
when people do try switching to a different provider
to buy an annuity, they often end up being put off
by red tape.
“Reams of paperwork, full of jargon means that most
ordinary people have no hope of really understanding
the complexities of annuities, buying from their
existing provider is far faster, easier and saves much
form-filling and chasing up of information.”
It can feel like you’re gazing into a
crystal ball, trying to make judgments
about things that haven’t happened yet,
possibly for decades to come.
Current investigations support the idea that many of us
are unprepared for the “range and complexity” of the
decisions we’ll need to make when we retire.
But try not to despair; like most financial decisions,
with some patience, research - and hopefully a shakeup of the annuity industry - you can reach the right
decision for you and your future.
46
Life Begins
www.lifebeginsmagazine.com