Ahead of the FCA Thematic review of the annuity market, MGM Advantage has launched a plan which it hopes will help address some of the significant shortcomings in the current market.
Everyone approaching retirement has the right to shop around for their annuity. People do not have to stay with the pension company they have saved with all of their lives. Half the market does shop around, looking for the right type of product and the best deal to suit their individual needs. Where people do shop around the external market, called the Open Market Option, more than half purchase an enhanced annuity, which provides an income based on the individuals own personal health and lifestyle.
However, of the 50% of people who stay with their current pension provider, currently only 6% go on to buy an enhanced annuity, which suggests many of the other 44% receive a poor deal1. This equates to £435,809,472m2 ‘lost’ income during the course of an average retirement for the 60,328 retirees in the first three quarters of 2013 alone.
Andrew Tully, Pensions Technical Director, MGM Advantage said: ‘These figures show just what a raw deal many people get at retirement. By sticking with their pension provider, they are effectively losing thousands of pounds in income which is rightfully theirs. That simply can’t be right, which is why we have published our Retirement Rescue Plan, which aims to promote the good, address the bad and highlight the downright ugly parts of the current market.
‘And it’s not all about enhanced rates. Where people stick with the holding provider fewer have access to alternative solutions like drawdown and investment-linked annuities. Given the internal market is clearly broken, the simple solution is to get everyone using the external market. I appreciate there is still work to be done here too, but it does mean many more people will get the right solution and best deal which meets their individual needs.
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