Pension Savers Are Still Denied Better Income
March 3, 2009
Thousands more elderly savers are missing out on vital income because they are failing to buy the best annuity.
This is despite the City watchdog pledging to sort out the problem.
Last June, the Financial Services Authority found that four in ten insurance companies were keeping savers in the dark about their right to shop around for a better pension income.
'Wake-up' packs sent out by insurance companies, designed to outline savers' options when they retire, were found to be unclear or misleading. The FSA gave them six months to clean up their act.
But new figures suggest the FSA's tougher stance has failed to make any inroads.
Figures published by trade body the Association Of British Insurers show 63 per cent - 283,000 of the 452,000 savers who bought an annuity in the year ending January 2009 - failed to shop around for the best rate. This is an alarming 2 percentage point increase in just a month.
These people are potentially missing out on thousands of pounds of income over their lifetime, because once you've bought an annuity, you're locked in for life.
There is a big difference between the best and worst annuity rates. A £100,000 pension pot will buy a 65-year-old man a fixed income of £7,336 a year with Norwich Union and just £5,904 from Axa - a £1,432 difference. Someone who buys an annuity with Axa and lives to 85 will miss out on £28,640.
Rates have plummeted in recent months, so it is more crucial than ever to squeeze every bit out of your pension. Last July, a £100,000 pension pot would have bought you an income of £7,920, compared to just £7,250 today.
Leading pensions campaigner Ros Altmann has accused the FSA of letting down savers.
She says: 'Hundreds of thousands of people buy an annuity every year and almost two-thirds of them are still rolling into an annuity with their existing provider, even if it
offers a poor deal.
'Yet for years the FSA has done nothing about it and just bowed to the interests of the insurance companies rather than protecting customers.'
The FSA refused to comment on the latest figures, but a spokesman says: 'All firms that were required to undertake remedial action on their literature following our review have done it and their literature is now of a high standard.
'Therefore, all literature now meets our requirements. However, as mentioned, we will keep this whole area under review and will take appropriate action against any firm that fails to meet the required standards.'
The ABI says the new figures do not necessarily show that fewer people are shopping around. It says more people could be actively choosing to stick with their existing pensions provider.
ABI spokesman Jonathan French says: 'We have made the options people have at retirement clearer, including prominent promotion of shopping around and how its use could give better value.
'This will take time to have an impact.'
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