Britain’s soon-to-be pensioners are being cheated out of getting the best deal on their annuities. There are a number of key issues:
1. The product providers hide the fact that you can shop around. Most people don’t shop around because they don’t understand that it’s possible – providers call it exercising the Open Market Option. Why not just Shop Around? The Financial Services Authority (FSA) research showed that the difference between the best and the worst annuities is up to 20%. And remember, that’s 20% for the rest of a lifetime.
2. Insurers create administrative delays to make it harder to shop around. In fact the FSA is investigating allegations that insurers are delaying transfer of funds when policyholders want to transfer to another provider for their annuity.
3. We as a nation do not really understand pensions. For the majority of people, financial education is non-existent and pensions are complicated.
4. Most people cannot afford a financial adviser. Although often financial advisers receive their income through commission from product providers this is not possible when the amount in the pension is low. The Thoreson Review of Generic Financial Advice was designed “to ensure greater access to high quality affordable financial advice for those most vulnerable to the consequences of poor financial decision-making.” The final Thoreson Review was published in March 2008 and merits its own post really so I’ll save that for another day.
5. Other providers don’t want your business if you have less than £5,000 in your pension.
If we don’t start forcing the insurers to act with a conscience (or just comply with the FSA’s Treating Customers Fairly rules) we will have an ever increasing pool of impoverished pensioners. Those with the least provision for retirement will, as always, suffer the most.