Insurers to ease pressure-selling of annuities

Pension providers to agree new code to encourage retirees to shop around

How annuities are sold is set for a major overhaul at the time of next month's Budget. Under pressure from ministers, insurance companies are set to agree to abandon profit-boosting pressure sales techniques to persuade pension savers to opt for poor paying annuities.

Insurers are to agree a binding code of conduct which will mean they have to ask a series of personal questions – such as marital status and state of health – before giving their pension customers a quote for an annuity. In addition, the Association of British Insurers' code will see savers pushed in the direction of independent brokers and the government-backed money advice service, who will help them shop around for the best possible annuity rate.

The idea is to stop consumers accepting their pension provider's annuity without question, with the likelihood that they will boost their retirement income by hundreds if not thousands of pounds a year.

"These reforms need to make shopping around the default option for people," says Joanne Segars the chief executive of the National Association of Pension Funds (NAPF).

The focus of talks between insurers, pensions industry bodies and ministers has been on how insurers sell to people approaching retirement and with a pension pot to invest. At present, the overwhelming majority of retirement savers do not get the best possible annuity – an income for life. In fact, a conservative estimate is that two-thirds of savers are simply signing up with their pension provider rather than looking elsewhere.

"It's an ongoing scandal which costs British consumers hundreds of millions a year," says Tom McPhail a pensions expert at advisory firm Hargreaves Lansdown and a participant in the talks. "If people do not make the most of their pot and sign up to inappropriate and low-value annuities then not only do they lose, but so does the taxpayer as less income tax is collected and more means- tested benefits are paid out."

Consumers, it seems, miss out in many ways by failing to shop around. "More often than not, you pay the cost of electing to go with an annuity offered by your pension provider," Steve Lowe from annuity specialist advice firm Just Retirement says.

"For example, you may have a medical condition which slightly lowers your life expectancy – even something as commonplace as diabetes qualifies – which should boost your income through an enhanced annuity. But, you can find that your pension provider doesn't offer one of these so you don't get the income uplift.

"Alternatively, your pension company may not offer a smokers annuity or even a joint life one – where some of the money is invested to provide an income for your partner after your death," Mr Lowe adds.

But insurers' pressure techniques discourage people from looking elsewhere. "What often happens is that you receive a letter near retirement from your pension provider telling you how much you have in your pot and what size annuity this will buy. You are then asked if you want this income now and to sign on the dotted line if you do. People don't realise there is a shopping around option and choose to go for the income today," Mr McPhail says.

These techniques can have a dramatic effect, according to Duncan Carter, the managing director of Clearwater Financial Planning. "I remember a case where a very large lady had conditions which meant she was almost certainly due an enhanced annuity. She wouldn't listen, though, as she had received a letter from her pension provider promising her income now and because of a short-term financial situation she felt that she had to go with the immediate income option."

The story though had a happy ending. "We strongly advised her not to sign and a day or two later she came back and asked us to shop around for her. We got a quotation that improved her annuity by more than 45 per cent compared to that being offered by her existing provider. The annuity started within six weeks of application, with the existing provider causing most of the delays," Mr Carter adds.

According to recent research from Just Retirement nearly 60 per cent of annuitants could have a medical condition which qualifies them to some form of enhanced annuity but fewer than one in 10 buy one. "The income uplift can be substantial take a £100,000 pension pot; with a standard annuity at best you can expect say £6,000 but on an enhanced that should be around £7,500," Mr Lowe says.

Until very recently, the insurance industry had shown little appetite for reforming how it sells annuities. As a result, ministers have threatened legislation. It's this threat which seems to have focused minds on the need for reform.

"No one wants legislation but the industry needs to move fast now. They have realised that the status quo is no longer acceptable – particularly with annuity rates at historic lows," Ms Segars, of NAPF, concludes. She has particular concerns about savers in occupational schemes.

"Many people have lots of small pensions and find it difficult to get advice because the sums are too small to be profitable. They'd get a much better deal if they could combine these little pots into one larger pension and then hunt out the best annuity for that," Ms Segars says.

She also accuses the insurers of putting obstacles in the way of people with occupational pensions from getting the best annuity rate. "Lots of scheme trustees want to try to encourage their members to shop around for an annuity, but the insurer managing the scheme doesn't go along with this."

Reform, it seems, is inevitable – with some insurers such as Aviva and Legal & General campaigning for changes. "Buying an annuity is one of the most important financial decisions of your life and it shouldn't take place without some sort of conversation taking place, either with an independent financial adviser or the pension provider," says Clive Bolton, Aviva's head of retirement.

"But in the interim, while people are waiting for the changes, the message has to get out there that if you are approaching retirement you need to engage and spend time to ensure you get the best possible annuity deal."

A 1930 image of the Karl Albrecht Spiritousen and Lebensmittel shop, Essen. The shop was opened by Karl and Theo Albrecht’s mother; the brothers later founded Aldi
Arts and Entertainment
Standing the test of time: Michael J Fox and Christopher Lloyd in 'Back to the Future'
filmA cult movie event aims to immerse audiences of 80,000 in ‘Back to the Future’. But has it lost its magic?
Arts and Entertainment
Flora Spencer-Longhurst as Lavinia, William Houston as Titus Andronicus and Dyfan Dwyfor as Lucius
theatreThe Shakespeare play that proved too much for more than 100 people
exclusivePunk icon Viv Albertine on Sid Vicious, complacent white men, and why free love led to rape
Arts and Entertainment
Stir crazy: Noel Fielding in 'Luxury Comedy 2: Tales from Painted Hawaii'
comedyAs ‘Luxury Comedy’ returns, Noel Fielding on why mainstream success scares him and what the future holds for 'The Boosh'
Life and Style
Flow chart: Karl Landsteiner discovered blood types in 1900, yet scientists have still not come up with an explanation for their existence
lifeAll of us have one. Yet even now, it’s a matter of debate what they’re for
Arts and Entertainment
'Weird Al' Yankovic, or Alfred Matthew, at the 2014 Los Angeles Film Festival Screening of
musicHis latest video is an ode to good grammar. But what do our experts think he’s missed out?
New Real Madrid signing James Rodríguez with club president Florentino Perez
sportColombian World Cup star completes £63m move to Spain
Hotel Tour d’Auvergne in Paris launches pay-what-you-want
travelIt seems fraught with financial risk, but the policy has its benefits
Arts and Entertainment
booksThe best children's books for this summer
Life and Style
News to me: family events were recorded in the personal columns
techFamily events used to be marked in the personal columns. But now Facebook has usurped that
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Programme Director - Conduct Risk - London

    £850 - £950 per day: Orgtel: Programme Director - Conduct Risk - Banking - £85...

    Business Analyst (Agile, SDLC, software)

    £45000 - £50000 Per Annum + excellent benefits: Clearwater People Solutions Lt...

    Finance Manager - Bank - Leeds - £300/day

    £250 - £300 per day + competitive: Orgtel: Finance Manager - Accountant - Bank...

    Compliance Officer - CF10, CF11, Compliance Oversight, AML, FX

    £100000 - £120000 per annum + BONUS + BENEFITS: Harrington Starr: A leading fi...

    Day In a Page

    Noel Fielding's 'Luxury Comedy': A land of the outright bizarre

    Noel Fielding's 'Luxury Comedy'

    A land of the outright bizarre
    What are the worst 'Word Crimes'?

    What are the worst 'Word Crimes'?

    ‘Weird Al’ Yankovic's latest video is an ode to good grammar. But what do The Independent’s experts think he’s missed out?
    Can Secret Cinema sell 80,000 'Back to the Future' tickets?

    The worst kept secret in cinema

    A cult movie event aims to immerse audiences of 80,000 in ‘Back to the Future’. But has it lost its magic?
    Facebook: The new hatched, matched and dispatched

    The new hatched, matched and dispatched

    Family events used to be marked in the personal columns. But now Facebook has usurped the ‘Births, Deaths and Marriages’ announcements
    Why do we have blood types?

    Are you my type?

    All of us have one but probably never wondered why. Yet even now, a century after blood types were discovered, it’s a matter of debate what they’re for
    Honesty box hotels: You decide how much you pay

    Honesty box hotels

    Five hotels in Paris now allow guests to pay only what they think their stay was worth. It seems fraught with financial risk, but the honesty policy has its benefit
    Commonwealth Games 2014: Why weight of pressure rests easy on Michael Jamieson’s shoulders

    Michael Jamieson: Why weight of pressure rests easy on his shoulders

    The Scottish swimmer is ready for ‘the biggest race of my life’ at the Commonwealth Games
    Some are reformed drug addicts. Some are single mums. All are on benefits. But now these so-called 'scroungers’ are fighting back

    The 'scroungers’ fight back

    The welfare claimants battling to alter stereotypes
    Amazing video shows Nasa 'flame extinguishment experiment' in action

    Fireballs in space

    Amazing video shows Nasa's 'flame extinguishment experiment' in action
    A Bible for billionaires

    A Bible for billionaires

    Find out why America's richest men are reading John Brookes
    Paranoid parenting is on the rise - and our children are suffering because of it

    Paranoid parenting is on the rise

    And our children are suffering because of it
    For sale: Island where the Magna Carta was sealed

    Magna Carta Island goes on sale

    Yours for a cool £4m
    Phone hacking scandal special report: The slide into crime at the 'News of the World'

    The hacker's tale: the slide into crime at the 'News of the World'

    Glenn Mulcaire was jailed for six months for intercepting phone messages. James Hanning tells his story in a new book. This is an extract
    We flinch, but there are degrees of paedophilia

    We flinch, but there are degrees of paedophilia

    Child abusers are not all the same, yet the idea of treating them differently in relation to the severity of their crimes has somehow become controversial
    The truth about conspiracy theories is that some require considering

    The truth about conspiracy theories is that some require considering

    For instance, did Isis kill the Israeli teenagers to trigger a war, asks Patrick Cockburn