The insurance industry's attempts to improve the way it sells annuities have led to a storm of protest this week. Critics have warned that new annuity tables will mislead rather than help consumers and leave them potentially thousands of pounds worse off.
Annuities are insurance policies where you use your lump sum to buy an income for life. But for years pension companies have encouraged their savers to buy annuities from the same company they saved up with, even though they could very often have got a much better deal elsewhere. After waves of criticism, the Association of British Insurers – which represents the big life and pension giants – agreed new rules earlier this year that forces pension providers to issue an information pack to customers before offering them an annuity.
Insurers should now explain to people that they can shop around for an annuity and may get a better price. They should also explain about enhanced annuities, which pay out more if you have certain medical conditions or smoke.
The latest part of this process was the publication this week of tables of different annuity prices by the ABI. For starters, it confirmed what experts have always known, that there's a massive difference between the best and worse rates paid by insurers. According to the ABI's table, the difference is 31 per cent, with Reliance Mutual offering the top rate and Scottish Widows the lowest, based on a level annuity for a 65-year-old man living in Manchester. But apart from the shock of seeing how much of a rip-off some annuities seem, the chief complaint is that the tables are out of date and inadequate.
Laith Khalaf of Hargreaves Lansdown said: "The rates are several weeks old, and there are only a limited number of examples which don't take into account anyone's individual circumstances precisely, or the type of annuity they want."
The table only lists ABI members – so Hodge Life, which is not a member of the association, won't be included even though the firm currently offers the best rates for a healthy non-smoker with a modest pot.
"Anyone relying on the ABI's tool are still likely to make poor decisions," warned Alan Higham of Annuity Direct. "The table degenerates the important choices at retirement into buying the cheapest annuity."
Otto Thoresen, the ABI's director general, said: "The industry is determined to do all it can to help people make the right decision to secure the best possible pension."
But Mr Higham said the ABI would be better telling people to get expert help. "One can't reasonably expect the ABI to do anything other than to safeguard its members' interests," he said.
"But if everyone coming up to retirement spoke to a good financial adviser, there'd be a big hole in the estimated £1bn wasted each year at retirement. That money by and large goes to prop up the profits of life insurance companies."