The specialist financial services group said recent figures showing how people aged over 55 are taking benefits shows a fall in the proportion exercising their right to buy the best product on the open market rather than to accept what their own pension provider has to offer.
“The difference can easily add up to thousands of pounds over the course of retirement,” said Stephen Lowe, group communications director at Just Retirement. “The new rules have not solved the problems of the past and have probably made things worse.”
FCA research shows that in the three months from July to September last year, 64 per cent of consumers who bought guaranteed income for life solutions stayed with their existing provider. With recent industry figures * suggesting that volatile financial markets have prompted an increase in interest in guaranteed income for life solutions, Just Retirement believes the need for shopping around is as important as ever.
“We know from prior research that four in every five pension savers who bought from their existing provider could have got a better deal by switching,” said Stephen Lowe.
“Since the new rules have come into effect last year, the figures for shopping around has fallen from around 40 per cent to 34 per cent of buyers and even that is an overstatement as it includes third-party sales which aren’t true shopping around.”
He said that similar shopping around concerns existed for income drawdown where only 39 per cent switched to a new drawdown provider. “The new rules have created ‘mass market drawdown’ but the numbers defaulting into plans with their own pension provider seems high, which may be a symptom of a lack of engagement or the fact it is much more difficult to compare different drawdown solutions in terms of costs and flexibility.”
Stephen Lowe said people need to compare providers against their current one to see how much they have to gain, particularly as the funds now being used to buy guaranteed income or income
drawdown are on average larger than they were before the pension rule changes so there is more to lose.
“The FCA review in 2014 found the biggest loss came when people accepted a standard annuity from their own provider but could have qualified for an enhanced rate of income, due to a medical condition or lifestyle factor, if they had shopped around,” he said.
“On current rates for a 65 year old with a £50,000 pension fund, a 20 a day smoker could get a quarter more guaranteed income from a specialist than if they were with the lowest paying provider – more than £12,000 extra income over a 20-year retirement
“Having had a heart attack and suffering high blood pressure and cholesterol might result in 21 per cent more income or nearly £9,000 over 20 years, while someone with a combination of common ailments such as asthma, diabetes, high blood pressure and high cholesterol might gain 31 per cent more income which would be £14,800 extra over 20 years.”
He added that the FCA figures showed a mixed picture about how people are engaging with pensions. “More people are accessing pension money and the smallest pots tend to be taken as cash which often makes sense,” he said. “The ones taking some cash but still leaving pension money invested do need to take care – your provider may offer this as a feature of your existing pension and make it easy to stay put but that doesn’t mean it is the best choice if, for example, the charges are higher.”
With the initial excitement of the new rules likely to die down through 2016, he said the focus will return to the primary purpose of pensions – to provide an income in retirement.
“The stock market falls have been a reminder that people need to take care which means making careful decisions when and how to take money, to avoid overpaying tax or being saddled with high charges, and to get the level of income required without taking unnecessary investment risk.
“A basic step is to shop around, ideally with the help of a professional adviser, to see how much guaranteed income for life you can generate and whether a higher rate is on offer due to your health history or lifestyle. That provides a base number against which to compare other options which may offer flexibility but perhaps pay a lower income and have higher costs.
“Just because the rules make it easier to get money out of your pension doesn’t mean you should be in a rush to do it.”
http://www.evalueis.com/evalue_pensions_freedom_index.html - these are the evalue figures which show that take-up of annuities has increased every quarter since April 2014
|
