People approaching retirement will find it easier to shop around to get the best possible retirement income under a new initiative launched today by The Association of British Insurers (ABI). The ABI has announced it will introduce a compulsory code of practice for insurers. Under the new code, ABI members will remove the annuity application form in the communications they send to their customers. This will stop consumers from automatically rolling over their pension savings to an annuity with their current provider
The new code will also ensure that customers receive all the information they need to shop around in one easily accessible place. The ABI will also continue to work with Government, consumer groups, and others, to make it easier to shop around.
ABI figures show that increasing numbers of consumers are buying an annuity from a provider which is not their pension provider (46% in 2011, compared to 35% in 2008), and about 70% of people shop around, that is, consider switching provider.
However, about a third of people do not shop around. As a result, consumers may be missing out on a higher income, potentially losing thousands of pounds, over the course of their retirement. Given about 650,000 people turn 65 in the UK every year (i), it is critical that the industry supports those individuals to obtain the best possible retirement income.
The ABI has identified customer inertia as one of the key reasons why people fail to shop around. Most consumers receive an application form for an annuity from their existing provider as part of the communication pack posted to them in the run-up to their retirement date. Many simply complete and sign the application form and send it back to their existing provider, rather than shop around for a better deal.
Maggie Craig, Director of Life and Savings said:
"The Association of British Insurers believes all consumers should shop around to maximise the income from their pension savings. However, not enough people shop around currently. This new industry initiative has been developed to make a significant difference to people's retirement outcomes."
Mark Hoban, MP and Financial Secretary to the Treasury said:
"I welcome the ABI's announcement on how they are going to help people shop around for an annuity which will ensure that people get the most out of their retirement fund. The ABI's announcement can form an important part of a wider package of measures to encourage consumers to get the best from the annuity market, which the Government is working with the pensions industry, advisers, and consumer groups to deliver in the coming months. "
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