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We need action now to help savers get better retirement outcomes

Otto_blogx268x317The Retirement Choices Code was launched by the pensions industry one year ago this month. It outlined a clear set of rules which providers had to follow when helping savers turn their pension pot into a retirement income.

It showed an industry committed to supporting our customers to get good outcomes even if it meant them switching to another company.

It was a step in the right direction but we know we need to do more.

The recent market study from the Financial Conduct Authority (FCA) into the way the annuity market is working for savers identified three key challenges which the pensions industry intends to take immediate steps to address.

Firstly, as the FCA correctly points out, people with smaller pots of savings have less choice of provider at retirement as fewer providers compete in that market.

Secondly, the FCA explicitly stated that in the annuity market “traditional methods of disclosure may not be enough to change consumer behaviour” – in short, simply telling people they can get a better deal elsewhere may not be enough to convince more people to switch.Whilst 90% of people are aware that they can shop around only two thirds say that they do, and less than half of annuities bought are from a different provider to the one people are saving with.

Third, customers have unequal access to enhanced annuities that can offer higher income because they take health and lifestyle factors into account.

We think the wrong question is being asked – the key issue is whether people with small pots should annuitise at all, not whether they should have more annuity providers to choose from.

The gains can seem small – the FCA estimated the average benefit from shopping around at just over a pound a week, but this is not just about the best rate, it’s about making  right decision about what product to buy, and when to buy it.  We need to act now to help people retiring get the best outcome for them.

The Budget is in less than two weeks’ time. The pensions industry is calling on the Chancellor to relax the rules around small pension pots – currently savers can only take their pot as cash if they have less than £2,000 in it. We think the wrong question is being asked – the key issue is whether people with small pots should annuitise at all, not whether they should have more annuity providers to choose from. We would like to see more flexibility for those with pots of less than £10,000 to give more choice at retirement and ultimately improve outcomes for many people.

In addition the industry is making new commitments to help people as they approach retirement which it plans to start work on immediately so they can be fully in place by the summer of 2015. The pensions industry will:

  • Ensure every customer has a conversation with their provider or an impartial advice or guidance service about their retirement options
  • Proactively offer all customers a comparison of annuity quotes so they can see the range of options available to them
  • Make sure customers can provide information about their health and lifestyle, which can then be used consistently with all providers as they shop around

The FCA’s competition study is going to take a year. And once the FCA recommendations are made there will inevitably be a period of consultation before the industry can start to respond. We plan to write to the regulator outlining our plans next week as we want to get on with improving things now.

We strongly believe these changes can make a difference and we intend to act.


Last updated 29/06/2016