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Reflections on the Annuity Window


Annuities are in the public eye, so it is no surprise that the ABI's publication of annuity rates has come in for close examination. Driven by much media scrutiny, there has been a massive increase in traffic to our website, with 27,500 visits to the annuity site in the last week.

Our publication of market rates is about promoting understanding of different types of products and providers, and motivating people to shop around for the best deal. It is part of our Retirement Choices Code, implemented by our members in March this year, which ensures clear and consistent communications and processes to increase levels of understanding and shopping around.

It could never be a 'silver bullet' that makes all consumers take optimal decisions at retirement, but is a further important step in building consumer engagement, understanding and trust. And it seeks to steer customers towards, not away from, advice and other sources of help.

We chose to vary three factors in each survey, to allow comparison between types of product and the factors that affect price. For the first survey we chose three factors that make a big difference and affect a lot of people's rates: single or joint life, health and postcode. Other factors are very important too - age, escalation, other death benefits, fund size - and future surveys will use different combinations of factors, as well as different health conditions and different postcodes.

We are grateful for the suggestions for improvements and have already made changes in response to them, including adding detail to the assumptions we make, linking to information about all options at retirement (deferral and commutation as well as other types of products),and explaining terminology through pop-up boxes and more links to a glossary.

We also received feedback where we have not yet made changes but would welcome views. The pages note that using a shopping around service or advice will involve a fee, and we did not attempt to explain here the difference between fees and commission, and advised and non-advised sales. No commission or adviser charge is incorporated into the published rates of external providers, because we asked those annuity providers who compete on the open market for their 'factory gate' rate; no such adjustment has to be made for internal sales. It means the tables are not comparing like with like, but this is a necessary trade-off.

There are other unavoidable complications and limitations in publishing this information. But we live in an era of transparency in which it is hard to justify withholding information on the grounds that it could be too confusing. We have sought to make the tables genuinely helpful and understandable and will continue to do so.

The results also defeat some assertions made routinely in the past; that internal-only annuity providers always offer low rates; or that providers offer better rates to their external customers at the expense of their internal customers. The results also demonstrate that prices, and the best rate available, differ markedly according to customers' circumstances. It reinforces the message to understand your own needs and to shop around.

This is one step in building consumer engagement, understanding and trust. Our Director General, Otto Thoresen, has called for a more fundamental review of wider solutions to the retirement challenge. The at-retirement market continues to evolve and we are keen to engage with initiatives to improve customer understanding and shopping around.

Last updated 29/06/2016