In March this year the Association of British Insurers’ (ABI) new Code of Conduct becomes effective for all annuity providers. The Code will ensure customers have access to the information necessary to make a properly informed choice when it comes to buying an annuity.
An annuity is a contract bought from an insurance company to provide regular pension income for life.
There can be a huge variation in the annuity rates offered by different insurance companies for example; a male aged 65 years with a pension fund of £200,000 may be offered an annual annuity of only £9,426 by one well-known provider but could be offered £11,377 per annum by another prominent provider – that’s a difference of more than 20% (Source: Better Retirement Group quoted by Sunday Times 3/2/2013.) This goes to show the importance of ‘shopping around’ to get the best deal, known as the Open Market Option (OMO). However, of the 400,000 or so annuities bought every year, about one third are bought from the company holding the funds without researching the best annuities available. (Source: ABI March 2012.)
The Code of Conduct is intended to address this failure of so many to take the Open Market Option, allowing the company holding the funds to do the ‘shopping around’ on behalf of their savers but crucially they are not required to present figures from all of their rivals so in many cases savers will still not get the best rates.
Normal annuity rates can often be beaten if the saver qualifies for an ‘enhanced’ or ‘impaired’ rates due to their health or lifestyle. These annuities can significantly increase the amount paid annually for the rest of your life and are available from providers specialising in this field.
All of this goes to show that it is essential to get good professional advice before making the decisions which will determine your lifestyle in retirement.
If you have a personal pension and are coming up to retirement, contact us at FMB to discuss your options and make sure that you get the best deal.