“The fact that 64% of consumers purchasing annuities stayed with their existing provider shows that they are still sleep walking into annuity deals without testing the market. In fact, the FCA considers that even this figure understates the problem, with active shopping around being considerably less. How many buy a car without shopping around for the best price? Yet with pensions, involving much bigger sums, we’ll buy without checking for the best deal. The FCA will take a hard look at whether enough is being done to encourage consumers to shop around.
“68% of Guaranteed Annuity Rates were not taken up according to FCA. Of this figure, 79% were in pots of less than £30,000”. Providers saw Freedom and Choice as a heaven sent opportunity to offload many of their GAR promises. These figures prove the point. FCA might be concerned that consumers are giving up valuable promises, but people want the cash now, and that isn’t necessarily a bad outcome, for the small pot market.
“The data report covers only contract based schemes (i.e. essentially, those provided by insures), it would be interesting to compare experience with the DC occupational market, and whether the same patterns emerge. I suspect that many in the occupational market are being denied the same level of flexible access.”
“Figure 3 of the report is interesting, it suggests that annuity purchase is more attractive the later you access your pot, up to age 70. This supports the emerging theory of a journey through retirement, with different blends of cash, staying invested and annuity purchase depending on where you are on the journey:
- Cash to begin with – holiday, car, kitchen
- With remainder, staying invested and draw cash from investments as income
- Later, use capital to secure income (through an annuity), perhaps in stages between 63 and 70.
|
