Pension providers must state if customers can get a better deal elsewhere

The FCA has recently announced that annuity providers must inform consumers of how their quotes compare to what other providers will offer. This, it hopes, will encourage people to compare prices before making a decision. The importance of this cannot be understated – the FCA has previously found that 60% of people simply stay with their existing provider when purchasing an annuity, but 80% of those could have got a better deal on the open market.

Many people check comparison sites each year when their home, car or health insurance is due for renewal, so it is perhaps surprising that so many are content to make a permanent retirement decision without checking to see if they could secure a higher income elsewhere. There are a few possible reasons though:

  • It is easier to accept the quote from the existing provider than to explore the market
  • Some providers charge a fee to transfer funds to a different company
  • Providers are under no obligation to clearly explain that the consumer can check the rest of the market, so the information is often buried within a long and jargon-filled wake-up pack

The Open Market Option was introduced years ago to help consumers get the best deal by allowing them to shop around for quotes. However, as there is no legislation on how the information is to be provided, it is often buried within long and jargon-filled documents, leaving many customers unaware of it. 

The FCA report also found that the complexity of these documents may put people off getting further quotes, so has called for a simplification of the packs that people receive.

When purchasing an annuity it is important to make the right decision because they are typically irreversible. The pension freedoms have provided people with more retirement options, but it is expected that there will be more products to hit the market in the coming months, which will further increase confusion. Even if you are sure you want to purchase an annuity, there are a number of types to choose from and picking the wrong one could significantly lower your income.

For consumers, a session with Pension Wise, the government’s free retirement guidance service could help with preliminary information, but talking to a regulated adviser will ensure you know the full range of options available to you.

What do you think of the FCA’s decision? Let us know with a comment below.

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